Chuck Moulton: An Open Letter to Gary Johnson about the Fair Tax

Chuck Moulton is a former vice-chair of the Libertarian Party. He sent the following to IPR:
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Governor Johnson called me on Wednesday to ask for my support as a LP convention delegate in Las Vegas. We spoke for 5 minutes about problems with the Fair Tax before I had to leave to teach a class. Later that day I wanted to follow up with more information in written form. Unfortunately Governor Johnson does not post his direct email address on his website, so I called him back at the number that called me leaving a voicemail with my phone number and email address. He didn’t get back to me, so I’m posting these concerns as an open letter instead.

My hope is the timing of this letter will facilitate an airing of these concerns with Gary Johnson and Jeffrey Miron on the video chat scheduled for Monday February 13. I believe Jeffrey Miron will find many of these concerns to be very legitimate — and that might knock some sense into Governor Johnson.

-Chuck Moulton

Chuck Moulton: An Open Letter to Gary Johnson about the Fair Tax

Governor Johnson,

I will be a LP convention delegate from VA. We spoke on the phone at 11:20 am EST Wednesday.

I mentioned to you that many libertarians are not fans of the Fair Tax. The purpose of this email is to give you more information on that so you can better position yourself to libertarians in general and Libertarian Party national convention delegates in particular.

I see that your economics adviser Jeffrey Miron advocates a flat consumption tax, but I can’t find any writings or videos where he has advocated the Fair Tax in particular. I agree with him that a flat consumption tax would be preferable to our current tax code. But I have several strong objections to the Fair Tax.

The devil is in the details.

Main libertarian objections to the Fair Tax:
1. The prebate would start a new welfare entitlement.
2. The transition would redistribute from savers to borrowers.
3. There is a danger of getting BOTH an income AND a consumption tax.
4. Advocates disingenuously quote a 23% rate when it is actually 30%.
5. Advocates use protectionist rhetoric to sway populists.

I will elaborate on all of these objections. I’d encourage you to consult your economics adviser Professor Miron to see if he agrees with me. Also current LNC treasurer and ballot access guru Bill Redpath has strong opinions against the Fair Tax.

First, when people start receiving a government checks in the mail it will create a new political constituency that will vote in favor of keeping and raising the checks. When a new entitlement is put in place it becomes politically very difficult to remove that entitlement due to the public choice theory of motivated, self-interested voters and special interest political contributions driving political decisions. Indeed it is far more likely (given ample historical precedent) that politicians will keep raising the check higher to get votes. Many libertarians fear this will be the camel’s nose under the tent that paves the way for socialist income redistribution.

Second, seniors that have worked their whole lives and have now retired to live on their savings (right when the Fair Tax is implemented) will see that savings taxed twice: once as income and once as consumption. In actuality this isn’t a cost, but merely a redistribution because conversely people who have ran up a credit card debt buying things before implementation of the Fair Tax and will subsequently earn money to pay off that debt will never be taxed. So during the transition period any consumption tax replacing an income tax will redistribute money from savers to borrowers. Any transition from one tax to another will have a redistribution effect, so this should not necessarily be a deal breaker. However, consumption tax advocates should be aware of this effect because failure to admit it will seem like the politician is trying to pull one over on people.

Third, libertarians are worried about supporting any tax because historical experience shows that government will tax as much as it can by any method it can. The current incarnation of the Fair Tax contains a Title IV which sunsets it if the 16th amendment is not repealed. From 1999 to 2007 the Fair Tax bill introduced in Congress did not include that sunset provision. It was included in the 2009 and 2011 versions. Many libertarians researched the Fair Tax before 2009 when the plain text of the bill left open the possibility of getting both the income tax and Fair Tax together — especially given a government running large deficits. Passing legislation is messy and unpredictable. In the course of passing the Fair Tax, that sunset provision could be taken out by amendment during negotiations. Another small technical point: even if the 16th amendment is repealed, the federal government can still impose an income tax as long as that tax is apportioned among the states proportionally to the number of people in each state. Additionally other taxes (like the corporate tax, capital gains tax, etc.) may be re-imposed by Congress after the Fair Tax is implemented.

Fourth, if the Fair Tax is quoted like any normal sales tax, then people will pay 30% of their purchases. If you give the Fair Tax pitch to a normal voter then ask him what his sales tax rate will be at the register, most will say 23%. Deliberately leading people to the wrong conclusion (even if not explicitly saying anything false) in order to sell a proposal is a red flag showing the proposal isn’t good enough to be embraced on its own merits. Libertarians familiar with the Fair Tax see advocates quoting a 23% rate as either misunderstanding the Fair Tax or lying to the public.

http://www.fairtax.org/site/PageServer?pagename=about_faq_answers#47

Fifth, I’ve heard you claim that the Fair Tax will make America more competitive because American companies will not have to disadvantageously pay the corporate tax while foreign companies don’t. The logic is the Fair Tax will make imports relatively more expensive than before implementation and make exports relatively cheaper than before implementation, which will stimulate production. As an adjunct professor of International Economics, I cringe whenever I hear that. Unfortunately the rhetoric misses the fact that consumers in America are worse off because foreign goods are more expensive and producers in foreign countries are worse off because American goods are cheaper. The same competitive effects could be realized by imposing an export subsidy on American goods and an import tariff on foreign goods. Both the export subsidy and the import tariff would lead to a deadweight loss for the world as the costs exceed the benefits. Production is just a means to an end, not an end in itself (utility in the form of consumption and leisure is the real goal), so production should not be a loftier goal than consumption and sacrificing consumption for production with a net loss is very misguided. Similar rhetoric to yours about the Fair Tax’s effect on American competitiveness is used to justify protectionist tariffs. Practically all libertarians are for free trade, and many libertarians have an ear for economics. While populist protectionist rhetoric may play well with the general public, it turns off libertarians.

Finally there is a contingent of radical libertarians who will be turned off by any advocacy of any tax — even a tax that is lower or more efficient or fairer than a current tax. They are far more excited about Ron Paul’s plan to eliminate the income tax and replace it with nothing. There’s no pleasing everyone. Most pragmatist libertarians will support transition policies that move the ball down the field to lower, more efficient, fairer taxes… but the Fair Tax isn’t even a good incremental policy.

For the reasons above, in my opinion you would win over more libertarians by advocating for the general concept of a consumption tax replacing all other federal taxes (without a prebate, but with constitutional amendments prohibiting all other taxes) than you will advocating for the Fair Tax in particular. At a minimum you should be familiar with the Fair Tax’s deficiencies and present them honestly to libertarians so you won’t be seen as a shifty politician trying to put lipstick on a pig.

There are a number of your other positions that libertarians are worried about (e.g., Guantanamo Bay detainees, entangling alliance with Israel, not pardoning non-violent drug offenders while governor), but the Fair Tax is the big one.

Thanks for your time reading my concerns.

-Chuck Moulton

Biography:

Chuck Moulton has held numerous leadership positions in the Libertarian Party at the national, state, and local level including vice-chair of the Libertarian National Committee, chair of the Libertarian Party of Pennsylvania, at-large member of the Libertarian Party of California executive committee, and 10th congressional district chair on the Libertarian Party of Virginia state central committee. He ran for U.S. Congress as a Libertarian in 2004. Chuck is an ABD economics Ph.D. student at George Mason University with research interests in free banking. He is also an attorney licensed to practice law in Pennsylvania, New Jersey, and California and a professional registered parliamentarian who currently serves on the LP’s bylaws committee. Chuck has taught undergraduate courses in Money & Banking, Mathematical Economics, and International Economics.

128 thoughts on “Chuck Moulton: An Open Letter to Gary Johnson about the Fair Tax

  1. Wes Wagner

    Chuck,

    This analysis very much puts the focus on genuine issues of equity. I suspect Johnson will not have an ethical response that he could offer as counterpoint. Hopefully he takes notice.

    -Wes

  2. John Jay Myers

    As usual Chuck Moulton is the voice of intelligence and reason. There is a strong case to be made for a consumption tax only, because then EVERYONE in the country would be fighting for less taxes…. and obviously less spending.

  3. Bill Woolsey

    Chuck:

    Good analysis of the key points regarding the Fair tax.

    I find that some advocates do double counting, suggesting that everyone will have their take home pay rise because there is no income or payroll tax, but then, the prices of goods will all fall because no taxes must be paid to produce things, so that prices plus tax will stay about the same.

    In my view, what would really happen depends on monetary policy, and the Fed could make it so that prices plus tax stay the same and everyone’s gross pay would fall to about where their net pay is now (about 23% lower) or prices before tax would stay about where they are now and prices plus tax would rise 30%, but everyone’s take home pay would be about what their gross pay is now, about 30% higher.)

    By the way, Paul doesn’t really say abolish the income tax and replace it with nothing in the near future.

    He says that is the ultimate goal. He says the Fair tax or a flat tax are better than the status quo.

    And his actual budget plan to cut $1 trillion immediately and balance the budget in 3 years leaves little room for much in the way of tax cuts at all, much less abolish the income tax too.

    There are some assorted tax cuts he has endorsed, but I think immediate (or rapid) abolition of the income tax is just wishful thinking by some Paulites.

  4. matt cholko

    I would love to see the Governor’s response to this. However, I don’t recall ever seeing him, or anyone from his campaign acting in an official capacity, post or comment on this site. Let’s hope this is the first time.

  5. Thomas L. Knapp

    Chuck,

    Thanks for a VERY cogent and well-reasoned letter to Johnson on the matter. Here’s hoping he pays attention to it.

    While I’m far from an advocate of the “Fair” Tax (I consider myself a pretty vociferous opponent, as a matter of fact), I can think of a way to tone down the redistribution effect versus savers:

    Simply have pre”Fair” Tax dollars that are in accounts where they’ve plainly been taxed already (Roth IRAs, for example) distributed as some other form of currency, equivalent to the dollar but not subject to the “Fair” Tax.

    In “cash” form, that might be a differently colored Federal Reserve Note; in digital form, a specially coded debit card account. The difference being that if you spend that money, the tax is not assessed on your purchases, and the merchant then exchanges it for “regular” currency that will be taxed as usual when he or she re-spends it.

  6. Robert Capozzi

    4 jjm, yes, in theory. But a cutover to a consumption tax also’d represent a massive tax increase for most. Very difficult to pull off….

  7. Michael H. Wilson

    Almost two weeks without a computer for me and it was nice.

    Focus on the spending and opening the markets.

    One quick example. A major problem for lower income people is a lack of adequate transit. If cities around the nation opened the urban transit market to competition low income people might have better job opportunities and thus a chance to get off welfare. The nation might see a reduction in social problems associated with poverty and thus a reduction in the need for government programs associated with poverty. A simple act of opening the market might save a lot of tax dollars over a period of years as the services improve.

  8. John Shuey

    Chuck, whom I count as a friend, either misunderstands or misstates a number of issues. For instance:

    1) The prebate is definitively not an entitlement any more than a refund on your income taxes is an entitlement. It is a refund of taxes up to the poverty level, effectively untaxing the truly poor while at the same time building a modicum of progressivity into the tax;

    2) First of all, seniors still pay income taxes on much of their retirement savings, and this expense will be a thing of the past. Additionally as to seniors, in as much as the compliance costs and taxes of the present system presently add on average a bit more than 22% to the price of everything that seniors (indeed everyone) purchase, and since we can expect to see substantive price reductions at least approaching that figure as the new regimen becomes entrenched, seniors cost of living will be dramatically reduced, amounting to a wash at worst for them;

    3) The possibility of ending up with both an income tax and the FairTax is a red herring. Congress diddles with the tax code every year, increasing taxes, adding fees, eliminating deductions, etc. Of course there can be no guarantee that a future Congress will not attempt to reinstitute an income tax. Then again there is no guarantee that a future Congress will not institute a VAT on top of our present income taxes. To stick with an obviously broken and unfair system of taxation because of something that might happen down the road is myopic, at best;

    4) The FairTax site adequately addresses Chuck’s 23% – 30% conundrum. In essence they are very forthcoming about the 30% figure, but use the 23% when comparing it to our present income tax rates. (If one pays an effective income tax rate of 22%, we don’t then back that out and then define it as a 28% rate on what he has left. Apples and apples Chuck;

    5) The competitive issue is just the opposite of what chuck describes. The FairTax will make U.S. manufacturers more competitive when selling their goods overseas, and thus eliminate a large incentive to offshore American jobs. Further, the FairTax will encourage economic growth two ways: First by offering foreign manufacturers who wish to sell into the U.S. an incentive to locate factories on American soil, and Secondly by enabling the repatriation of up to $100 trillion of funds belonging to American citizens and companies that are now trapped overseas because of the adverse tax costs of bringing them home; finally

    6) Frankly, we cannot allow a handful of radicals, or otherwise uninformed Libertarians, to block us from advocating and taking the bold steps necessary to turn around our economy and begin the process of restoring freedom to America. I can state without fear of contradiction that most LP radicals already oppose the governor because of his foreign policy positions, and a change in his advocacy for the FairTax will not swing a single vote nor produce another dollar in contributions.

    If the FairTax achieved nothing but the abolition of the IRS, it would still count as the greatest single step forward for liberty since the Declaration of Independence. The opposition by some Libertarians is incredibly short-sighted and does nothing to advance the goals we all share.

  9. Charles Lupton

    I am Gov. Johnson’s TX finance director and believe the concerns here are valid. I will be forwarding this to his upper level campaign staff and recommending Gov. Johnson read this and prepare a response as well.

    Thank you,
    Charles Lupton
    Texas Finance Director
    Gary Johnson for President 2012

  10. Hardy

    ?”They are far more excited about Ron Paul’s plan to eliminate the income tax and replace it with nothing”

    Paul’s plan is to lower the corp tax to 15% and keep the personal income tax where it is. Paul’s plan also takes 3 years before he presents a balanced budget. Any libertarian who is claiming Paul’s plan replaces the income tax with nothing are just getting sold a bill of goods.

    But if you want to go by the same logic Paul supporters are using here then Johnson doesn’t want any taxes either, but his interim plan includes getting rid of person income tax, corp tax, estate tax, gift tax, payroll tax.

  11. Chuck Moulton

    John Shuey wrote (@10):

    1) The prebate is definitively not an entitlement any more than a refund on your income taxes is an entitlement. It is a refund of taxes up to the poverty level, effectively untaxing the truly poor while at the same time building a modicum of progressivity into the tax;

    According to wikipedia “An entitlement is a guarantee of access to benefits based on established rights or by legislation.” That fits this to the letter.

    If someone buys only used goods, then they pay $0 in taxes and get a check from the government. In order to get a “refund”, there must be an initial “fund”.

    John Shuey wrote (@10):

    2) First of all, seniors still pay income taxes on much of their retirement savings, and this expense will be a thing of the past. Additionally as to seniors, in as much as the compliance costs and taxes of the present system presently add on average a bit more than 22% to the price of everything that seniors (indeed everyone) purchase, and since we can expect to see substantive price reductions at least approaching that figure as the new regimen becomes entrenched, seniors cost of living will be dramatically reduced, amounting to a wash at worst for them;

    You’re double counting. See Bill Woolsey @5.

    John Shuey wrote (@10):

    3) The possibility of ending up with both an income tax and the FairTax is a red herring. Congress diddles with the tax code every year, increasing taxes, adding fees, eliminating deductions, etc. Of course there can be no guarantee that a future Congress will not attempt to reinstitute an income tax. Then again there is no guarantee that a future Congress will not institute a VAT on top of our present income taxes. To stick with an obviously broken and unfair system of taxation because of something that might happen down the road is myopic, at best;

    Passing a new tax helps Congress to expand taxes. It’s easier to revive an old tax people were used to than to get them to support a new tax.

    The 16th amendment allowing an income tax without proportionality to the states was initially passed to replace revenue from excise taxes on alcohol that would be gone due to prohibition. When prohibition was repealed we got both taxes on alcohol from states and the income tax.

    The income tax in 1894 was 2% levied on only the top 10% of income earners. The income tax in 1913 had rates ranging from 1% to 7%. Those rates increased significantly because Congress loves spending and it loves taxes.

    John Shuey wrote (@10):

    4) The FairTax site adequately addresses Chuck’s 23% – 30% conundrum. In essence they are very forthcoming about the 30% figure, but use the 23% when comparing it to our present income tax rates. (If one pays an effective income tax rate of 22%, we don’t then back that out and then define it as a 28% rate on what he has left. Apples and apples Chuck;

    I linked to that FAQ question on the Fair Tax website in my open letter.

    You can find it buried in the FAQ, but when advocates talk about the rate they invariably say 23% (including Governor Johnson). And every person I’ve talked to who heard the Fair Tax pitch for the first time mistakenly believed the rate at the cash register would be 23%. It’s disingenuous.

    John Shuey wrote (@10):

    5) The competitive issue is just the opposite of what chuck describes. The FairTax will make U.S. manufacturers more competitive when selling their goods overseas, and thus eliminate a large incentive to offshore American jobs. Further, the FairTax will encourage economic growth two ways: First by offering foreign manufacturers who wish to sell into the U.S. an incentive to locate factories on American soil, and Secondly by enabling the repatriation of up to $100 trillion of funds belonging to American citizens and companies that are now trapped overseas because of the adverse tax costs of bringing them home; finally

    Re-read what I wrote. I described it accurately.

    You make the same error as as Governor Johnson: ignoring losses to American consumers and putting production up on a pedestal. Free trade is good. Open borders immigration would be good.

    John Shuey wrote (@10):

    6) Frankly, we cannot allow a handful of radicals, or otherwise uninformed Libertarians, to block us from advocating and taking the bold steps necessary to turn around our economy and begin the process of restoring freedom to America. I can state without fear of contradiction that most LP radicals already oppose the governor because of his foreign policy positions, and a change in his advocacy for the FairTax will not swing a single vote nor produce another dollar in contributions.

    You are severely underestimating libertarian opposition to the Fair Tax if you believe only radicals are against it. Most moderate libertarians I’ve spoken to also oppose the Fair Tax.

    Johnson’s current support is in spite of his Fair Tax advocacy, not because of it. I include myself in that characterization, because I am a Gary Johnson supporter.

    John Shuey wrote (@10):

    If the FairTax achieved nothing but the abolition of the IRS, it would still count as the greatest single step forward for liberty since the Declaration of Independence. The opposition by some Libertarians is incredibly short-sighted and does nothing to advance the goals we all share.

    Eliminating the IRS would be a wonderful thing! The Fair Tax creates a whole different bureaucracy to collect its tax though.

  12. Chuck Moulton

    Hardy wrote (@12):

    Any libertarian who is claiming Paul’s plan replaces the income tax with nothing are just getting sold a bill of goods.

    Congressman Paul has put forth many different plans in his many years as a candidate.

    Here’s a recent citation for the 0% plan:
    http://dailycaller.com/2012/01/17/paul-federal-income-tax-rate-should-be-zero-percent/

    Even if Dr. Paul never advocated that though, Governor Johnson would still be in stark contrast to Harry Browne who wanted to eliminate the income tax and replace it with nothing.

    But that was a very tangential point, so I don’t see much reason to dwell on it.

  13. Thomas L. Knapp

    John @ 10,

    “The prebate is definitively not an entitlement any more than a refund on your income taxes is an entitlement. It is a refund of taxes up to the poverty level”

    No, it isn’t. The “prebate” is a uniform amount which you receive regardless of what amount of tax you pay, or even if you pay no tax at all. The “rebate” language is good salesmanship, but it’s 100% completely false.

    “If the FairTax achieved nothing but the abolition of the IRS”

    … but it wouldn’t do that. There would still need to be a federal agency to administer the “prebate” welfare program, to police the states and make sure they are collecting and remitting the tax, and to suppress interstate tax evasion schemes.

    There would also be 50 new “mini-IRSes” — either completely new organizations or augmentations of existing state revenue agencies — to collect the tax.

    “Frankly, we cannot allow a handful of radicals, or otherwise uninformed Libertarians, to block us from advocating and taking the bold steps necessary to turn around our economy and begin the process of restoring freedom to America.”

    How does a new tax — which its advocates claim is just as “progressive” as the income tax, and which they also claim is “revenue neutral” — coupled with a universal federal welfare program, “begin the process of restoring freedom to America?”

  14. Steven Wilson

    I don’t get the impression that Johnson can speak at length about it like Linder. I believe he uses it as a gimmick to differentiate himself from the other brands.

    Reporters can get away from standard interviews because he is the only person running that promotes the tax. It makes him different. Smart move in the short run.

    Jordan never spoke about the means to defying gravity, he just wanted you to buy the shoes.

  15. Bill Woolsey

    The argument that the prebate is not an entitlement assumes that everyone spends as much on consumption as the poverty level. For purposes of argument, let’s suppose that people that poor spend their entire income on consumption, so that means that it assumes that everyone earns an income at least as high as the poverty level. Not true.

    Suppose somone earns no income and so would consume nothing and pay no tax. They recieve a “prebate” which is not much (30% of the poverty level?) Presumably that is all spent on consumption.

    Anyway, the guaranteed national income is 30% of the poverty level. Not much. About $3000 for an individual. About $6,000 for a family of 4. With the 30% sales tax, it is like having 77% of that much money and no such tax. For an individual that would be $2300.

    People that earn something get less “welfare”, (falling at a 23% rate, I guess.) When earnings reach the poverty level, there is no more “welfare” on net. It is a true “prebate,” so that no net tax is paid. For people earning (really consuming) more than the poverty level, the prebate just reduces their net tax payment.

    As you can see, the prebate argument assumes everyone earns (and consumes) at least the poverty level.

    I don’t entirely agree with Knapp on the 50 mini-IRS’s. However, people who sell many services that are usually untaxed, or retailers who live in states with no sales tax, will suddenly be burdened. And no doubt the enforcement issues would be more severe with such a high level of sales tax.

    What it does is greatly reduce the tax complience on everyone other than those who must collect the tax and for most retaliers in the U.S., it wouldn’t be any more complicated than today.

    However..it is a mistake to imagine that Gary Johnson will be elected President, implement the Fair Tax, and then the state revenue authorities will be harrassing people and the country will be ruined (or libertarians get the blame.)

    It isn’t like Johnson will be elected President, implement the Fair Tax, and then the prebates will create a new entitlement which will grow out of control and the country will be ruined (or libertarians will get the blame.)

    Gary Johnson was at 7% in the last poll I saw with Romney and Obama.

    The real question is whether having a Presidential candidate who promotes the Fair Tax is positive or negative for the libertarian brand?

    A secondary question might be whether Johnson’s advocacy of this position makes it more likely to be really adopted, and so whether it really will be good or bad.

  16. Bill Woolsey

    Chuck:

    I watched the debate. They asked all the candidates what they thought the top tax rate should be. Paul said zero percent.

    He didn’t say that he would be abolishing the income tax anytime soon. When he has elaborated on the issue, he begins to talk like a libertarian educationist, not a political leader explaining what he will do. People have to change their expectations about the role of government. We have all these entitlements and getting out of that burden will take a long time. (But we can cut foreign spending right away.)

    Of course, you know the Brown story.

    When he first began to run for the LP nomination, he said we should fund a much smalller federal government with a low tax on wages or a low national sales tax.

    This created a firestorm of criticism. Anyway, before long, it was abolish the income tax and replace it with nothing.

    Personally, I think the best tax program of any candidate was Clark’s 50% cut in income tax rates.

    But for now, I think Johnson ought to go with Paul’s approach. Promising deep tax cuts is not the right message today. Deficits and the national debt are out of control .

    But, the current tax system is a mess. We need to look at something like the Fair tax or a low, flat tax. But our long term goal should be to get rid of the income tax. The country survived without an income tax, yada, yada.

    I think the plan of cutting Federal Spending 90% in the first year is probably not good for the libertarian brand. It creates the continued reputation for not being serious.

    But if those fair tax activists are still out there, and they would really come on board and help Johnson, I think it might be worth it, warts and all.

  17. Less Antman

    Thanks, Chuck, for doing an excellent job of addressing this issue in a manner most likely to be productive for the LP and all potential candidates, Johnson included.

  18. Derek

    John Shuey,
    Regarding your 4th issue, the argument is that in discussion the difference between the 30% sales tax equivalency and the 23% income tax equivalency isn’t clear.

    Most people hear Sales tax when Consumption tax is used. So they base comparisons on their understanding of sales taxes. One of the guidelines of effective communication is understanding your audience. Continuing with the misinterpreted phrasing is disingenuous at best. Most detractors will see it as misleading spin.

  19. George Phillies

    “There would also be 50 new “mini-IRSes” — either completely new organizations or augmentations of existing state revenue agencies — to collect the tax.”

    There was litigation over whether the Federal government can compel the states to do certain things, an outcome of 9/11 whose details I have now forgotten. The Supreme Court said “no”. If a state does not collect a sales tax, it cannot be compelled to create a sales tax agency.

  20. Nicholas Sarwark

    @21: State governments cannot be commandeered to do Federal business, a principle most recently held in the case of local Sheriffs who were required to do Federal background checks for gun purchases.

    However, a tax could be structured in an apportioned manner and thus meet constitutional muster. I don’t think the Fair Tax is structured that way, but it could be.

  21. Gracemarie Collins

    How’s the existing tax code and state of our economy working out for you Mr Molton? Why are you misleading people about the 23% inclusive tax rate. People check out the Fair Tax it is far better than anything on the table now. http://www.fairtax.com

  22. Guy McLendon

    John Sheuy (@ 10),

    To paraphrase Nancy Pelosi, “Let’s just pass the legislation, and we’ll just pass subsequent legislation to fix what’s wrong with it.” In this case, you’ll notice the Establishment conveniently placed section 401 where it’ll be easy to truncate. Do you seriously believe the federal government will stop a new revenue stream 7 years after it’s instituted? There’s zero chance the Fair Tax will be rescinded if the states don’t repeal the 16th … none … zilch. Alan Greenspan himself once testified before congress, and told the critters that a income tax & federal sales tax can coexist very nicely.

    http://www.fairtax.org/site/DocServer/FairTax_Act_of_2011_H.R.25.pdf?docID=8661

  23. Robert Capozzi

    18 bw: Promising deep tax cuts is not the right message today. Deficits and the national debt are out of control .

    me: That may be heretical for some, but I completely agree. The L brand would be pushed further into the non-serious, far right stratosphere with such a position. Spending is the issue of the day, much more than even in recent decades. Engaging on how revenue is raised is at best tertiary at this stage in the game, although certainly the non-revenue compliance burden is something for GJ and Ls to echo our long-held critique of the current “system.”

    Aggregate tax cuts are for another day.

  24. JT

    To me, this discussion illustrates one thing that’s wrong with the Fair Tax: there are provisions in it that need to be explained. Even though it might easily understood by people who’ve studied it, most voters don’t educate themselves on the details of any proposal. I think there was a similar problem with the Social Security reform proposals being pushed during the Bush administration: they contained qualifiers and limits that only policy wonks were going to familiarize themselves with.

    I want to eliminate the income tax and the IRS entirely, but I can also support a simple transition measure on any issue to where we want to go. In that vein, I could support a candidate who wants a low, flat income tax with no exemptions (along with a large overall spending cut immediately), which is a simple concept. But any proposal like the Fair Tax, which has “but this, except that” provisions, I don’t really like.

    I’m not convinced that GJ ever loved this idea; he may have just adopted it to differentiate himself as a Republican from all the other Republican contenders. As a Libertarian though and without a Republican nominee Ron Paul (which at this point any libertarian should know there won’t be), he might feel free to advocate no income tax and no replacement.

  25. JT

    Guy: “Alan Greenspan himself once testified before congress, and told the critters that a income tax & federal sales tax can coexist very nicely.”

    Alan Greenspan makes me sick. He’s the poster child for how power can corrupt.

  26. George Whitfield

    Thanks Chuck for a well-written and thorough letter. I like Gary Johnson but I have reservations about his Fair Tax proposal as well as his support for entangling military alliances with other nations. So as for now I am supporting RJ Harris for the LP Presidential nominaton.

  27. Bill Woolsey

    I think a national sales tax would count as an “indirect” tax. It is just a uniform excise tax on all consumer goods and services.

    It is Constitutional. The 16th amendment had to do with allowing “direct taxes” without apportionment by population. For the founders, direct taxes clearly included property taxes, like on your house. The majority of an early Congress passed a carriage tax, and the more libertarian founders (well, Madison) complained that this was a direct tax. So, it was controversial. When income taxes came along, some claimed it was an excise. The Supreme Court said the wage part was an excise, but a tax on income from property, including stocks and bonds as well as land and buildings, was really a tax on the property and so a direct tax that had to be apportioned. Since those supporting the tax claimed that tariffs were taxing labor and wanted the income tax to shift the burden to property, keeping the part on wages was claimed to be contrary to the intention of Congress. The whole thing went.

    Anyway, if some state didn’t want to collect the federal sales tax, then a smaller IRS would have to collect it in those states.

    By the way, the IRS collects federal excise taxes already.

    Those who take the abolish the personal income tax, and use customs and excise taxes, are in error when they say “get rid of the IRS.” The IRS collects the excises. But I guess it could be alot smaller.

  28. Brian Holtz

    Chuck @14, that citation isn’t for a 0% income tax “plan”. It contains no information about what spending Ron Paul would cut when the income tax revenue is gone.

    There is a word to describe politicians who promise tax cuts without saying what spending they’d cut.

    That word is “Republican”.

    Ron Paul says he’d like a 0% income tax, and my 5-year-old says she’d like a pony. Neither of them has a plan for achieving their goal.

    I generally agree with Chuck’s message to Johnson, but only because of reasons 1 and 3 (prebate and ending up with both taxes).

    Having 50 IRS’s would be a vast improvement over the status quo. It would be a huge step in the direction of markets in governance, and all libertarians should favor moving in that direction.

    That is why Johnson should advocate Fair Tax only as a way for states to pay their federal tax bills when all federal taxes get apportioned by population to the 50 states.

  29. Hank Van Gieson

    Sorry to be so late to this party, but there are a few more Fairtax criticisms that haven’t been mentioned.

    (1) The Fairtax will destroy Social Security as we know it. We pay for SS benefits by taxing workers, and when retired, no more payments are needed. Under the Fairtax, it is paid for by everyone for all their life, whether retired or not. The basis for the amount of benefits is work history. What would be the basis for setting the amount under the Fairtax? Are you really going to tell someone who never worked, but paid mucho sales taxes that they aren’t qualified for SS benefits?

    (2) Federal taxation of State and Local government consumption is unconstitutional under our federal form of government. The Supreme Court will throw out this feature under the doctrine of “intergovernmental tax immunity”.

    (3) The Fairtax will destroy the new housing market. A federal tax has no collateral value, and buyers will have to come up with the 20% down plus the 30% sales tax.

    (4) The Family Consumption Allowance (prebate), is a $600 billion annual entitlement coming at a time when entitlements are squeezing out discretionary spending in the federal budget. And, the prebate will create a group of tens of millions of lower income workers that will never pay any net federal tax, yet will still qualify for all SS benefits.

    The Fairtax is a very bad plan, and should be scrapped. A small VAT might make more sense as a way to help retire our staggering national debt.

  30. Andy

    Very good letter. I think that Chuck really wants to support Gary Johnson for the LP’s Presidential nomination, but he is starting to become concerned about Gary Johnson’s flaws as a candidate. It will be interesting to see if Gary Johnson responds to this, and if he does, it will be even more interesting to see what he says.

    Ideally, if one is a candidate for the Libertarian Party’s Presidential nomination, issues such as this should be “worked out” by the candidate before they even declare that they are seeking the nomination. I’m a bit concerned about a candidate who has to be talked out of supporting a bad issue this close to the nominating convention.

  31. Robert Capozzi

    32 bh: That is why Johnson should advocate Fair Tax only as a way for states to pay their federal tax bills when all federal taxes get apportioned by population to the 50 states.

    me: How would that work, BH? I’d think that the Proportional by State Tax (PST) would allow 50 or so experiments in how revenues are raised.

    Interestingly, this Tax Foundation study (a bit dated, from 05) suggests that Federal spending and revenues are pretty disconnected. http://www.taxfoundation.org/research/show/266.html

    This 07 IRS chart shows a somewhat similar picture. It’s simply Federal revenues per capita by state. My reading of it is that the Northeast is carrying the biggest per capita load.

    http://en.wikipedia.org/wiki/Federal_tax_revenue_by_state

    Throwing out DC, I’m guessing that DE’s worst per capita tax rate is corporate tax related.

    Has any thorough wonk work been done on the PST? IF GJ wants to walk back his (I’d say) FAIR Tax error, I’d want him to adopt a reasonably bulletproof alternative. The FAIR Tax kinda sounds OK, too, until one looks at the details.

  32. 24/7 the T-Rex of Talk Radio

    This is roughly six months old and has not been changed. This is the campaign’s Video stance on Taxes !

    Gary Johnson 2012: Taxes – http://www.youtube.com/user/govgaryjohnson?feature=BF#p/u/7/227YyBf7-KQ

    This guy has the “set” to FIX the problem. He knows it and now I know it after spending time watching all his you tube stuff.

    IMO and it’s MO only, I think GJ has some ties to the RLC. Many in the RLC favor the “FairTAX”. Neil Boortz preached it on his radio show for years. As stated above GJ may have just included it in his program to distinguish (sic?) himself from the competition and tap a donors vein.

    The way things have worked out and the R deal never took off and the L just beginning he should be smart enough to abandon it and just walk away from it. In this vid from the official sight he doesn’t even mention it. He states whatever you tax you get less of it, so if that’s the case if you tax comsumption more you will get less of it. Which couldn’t be good for the economy overall. He needs to just drop the FairTAX and move on to better ideas !!!

  33. Free Opinion

    Maybe GJ is just trying to pick a fight with Ls, in order to create controversy/publicity?

    Isn’t that the standard approach? Seems to be working here, judging by all the free ink.

  34. Brian Holtz

    Proportional by State Tax would allow 50 or so experiments in how revenues are raised

    Precisely. But somebody who’s been touting the Fair Tax could say he’d prefer states to use consumption taxes to pay their share, rather than instituting an income tax that at the federal level had grown to 16,000 pages of rules.

    Imagine what would happen with a state-apportioned capitation tax. Congress would come under immediate pressure to make each state’s spending more closely match its revenue. As soon as that happens, people would loudly question why state revenue needs to take a vacation in Washington D.C. before coming back to the state to be spent. States would demand local control of such spending, creating intense pressure to defederalize many programs. Instead of one federal nanny state there would be 50, and you could vote with your feet for the least intrusive one.

    This would be the Free State Project on steroids.

    Gary Johnson already advocates half of this plan, with his proposals that entitlements like Medicare and Medicaid be turned into block grants for the states. He just need to realize that state-aggregated revenue is the flip side of state-aggregated spending.

  35. Brian Holtz

    Johnson in a Washington Times interview Thursday:

    Entitlement reform in a Johnson administration would begin with the fundamental notion that virtually all “entitlement” programs can and should be turned back to the states in the form of block grants, with the federal expenditure reduced sufficiently to achieve a balanced budget. Whether it be nutrition assistance, Medicaid and Medicare, or any other delivery of basic services, the states can set policies, determine priorities and manage those programs more efficiently and more economically than the federal government. Fifty laboratories of innovation would be freed to innovate and respond to the needs of their constituents.

  36. zapper

    I would like to be able to support Gary Johnson:

    A consumption tax is a good way to replace all other taxes and eliminate the need for individuals to deal with the IRS at all. We must be sure that the implementing transitional legislation and constitutional amendments mean that the outcome will be that only a single tax on consumption survives the change.

    Instead of the “Fair Tax,” Governor Johnson should advocate some kind of flat-rate, across the board, national sales tax or VAT along with his 43% spending cut and no prebate. This should allow a far lower sales tax rate than the 30% in the un-Fair Tax.

    Freedom from the IRS and all its penalties, threats, snooping, reporting and recordkeeping is an essential component of a return to liberty. We must set individuals free from taxation, even if it is left to businesses to collect during the transition.

    The prebate means individuals still have to file. As Libertarians we should have as one of our primary goals the elimination of all tax filing and reporting of any kind for all individuals.

    It is also very important to put everyone in the same boat – we all pay the same rate and have the same incentive toward reduction of the consumption tax flat rate – meaning the rate must remain flat and across the board with no favored items (no lower rates for food or drugs for example) and no favored groups (no prebate!).

    The change from the current system to a new one will make it possible to find “winners and losers” but this is really a meaningless exercise. One can argue that the winners are those who were being persecuted the most previously and the losers were those who were previously favored. Change to a better system is never easy and fairness is a subjective, philosophical abstract.

    By advocating a consumption tax in general, Governor Johnson can appeal to the supporters of the Fair Tax by proposing to look at their proposal and concerns in the design and implementation of his final proposal after being elected.

    Governor Johnson also needs to adopt a non-interventionist foreign policy in principle. Sure, he can talk about hypothetical realities of the real world as well and avoid the purity traps that catch Ron Paul from time to time. This should be done in general as much as possible without any reference to any individual state (the Israel trap).

    Of course, non-intervention comes with massive savings from reduced military spending and elimination of foreign aid.

    Finally, by getting the government out of empire building and ending all but a consumption tax, we can get our economy moving.

    The US has suffered from overconsumption for far too long precisely because we tax wealth, property, investments and income – and these are the things we are short of. We do get less of what we tax and we’ve been shooting our economy in the heart for too long. Consumption comes second, for without production there is nothing to consume and we all die.

    There is also a green effect to the consumption tax. Existing goods already produced become tax free comodities. Keeping your clothes, appliances, housing stock etc in good repair and functional becomes slightly cheaper and replacing useable items slightly more expensive. It becomes more expensive to produce un-needed brick-a-brack, junk and even packaging. We will encourage the production of better goods and will last and discourage the creation of trash, land-fills and junk yards.

  37. Rebecca Sink-Burris

    While I would prefer no taxes at all, realistically that is not going to happen anytime soon. As I look at different taxing schemes and how they have been actually implemented and performed in the real world, the Flat Tax stands out as having had some good results in growing economies. Especially impressive to me is that some countries have actually lowered the tax rate that they started with. The “Fair Tax” to my knowledge has not been implemented anywhere and has no track record.

  38. 24/7 the T-Rex of Talk Radio

    Here is GJ’s position as of 2-11-12 (Yesterday)

    http://www.youtube.com/watch?v=eAeU8YNEM4s&feature=related

    The message isn’t getting through to the candidate when half(+) of the room applaudes and 70% give him their straw vote! Well 67 (NYLP) to 70% (LPF) can surely give you the Nom but <70% grassroot activism through to Nov. election day doesn't add up to success for the LP locally and nationally, 85 to 100% activism is needed! GJ needs to be comforted on these UN-L positions NOW! Start tomorrow night at his video townhall!

    https://www.facebook.com/events/319170208124849/

    Monday Night @ 9 PM EST, 8 PM CST, 7 PM MST & 6 PM PST.

    Please SHARE the link and start time with all concerned LP members who you know. Thx

  39. Hank Van Gieson

    Rebecca,

    You need to spend some time examining the VAT. In use in over 120 nations, a VAT is just like a sales tax except the revenue is collected in small chunks up through the production cycle, whereas a sales tax is collected all at once at the retail cash register. Because of the collection method, a VAT has significantly lower evasion potential.

    A broad based national sales tax was tried and rejected by only six countries according to noted tax expert Joel Slemrod.. In his book “Taxing Ourselves”, he writes that Iceland, Norway, S. Africa, Sweden, Zimbabwe, and Slovenia all attempted a national sales tax, but quickly switched to a VAT. The major difficulty with a retail sales tax is evasion, and former IMF Director, Vito Tanzi, concludes that 10% is probably the maximum feasible rate for a retail sales tax. VAT’s in use have already demonstrated the ability to function successfully at rates over 20%.

    Stay tuned!

  40. ATBAFT

    Zapper #41 – we may be short of investments, which are taxed under US tax policy, but some of us did manage to put something aside for retirement. Now, as we spend down savings, we are going to be taxed again for consumption???
    The Fair Tax, if implemented fairly, is going to have to have some exemption for consumption coming from current income and consumption coming from savings.

  41. Hank Van Gieson

    ATBAFT,

    And speaking about fairness, how is it fair to force all current retirees to resume paying for their SS benefits with their sales tax dollars? After paying into the SS Trust Funds for 45 years or so, I believe I was promised my benefits with no further payments. Under the Fairtax, everyone will pay from womb to tomb which brings into question just how your retirement benefits will be calculated. No one is talking about it, but the Fairtax scheme will destroy SS as we know it. Stay tuned!

  42. JT

    Hank: “No one is talking about it, but the Fairtax scheme will destroy SS as we know it. Stay tuned!”

    Hank, are you under the impression that Libertarians want SS as we know it? I understand your concern, and there are libertarian ideas to transition out of SS that wouldn’t screw over current beneficiaries such as yourself. But “SS as we know it,” a Ponzi scheme in which income is transferred from younger (and usually poorer) and middle-age Americans to older Americans, with politicians spending anything that’s leftover, shouldn’t exist anyway.

  43. Hank Van Gieson

    JT,

    I didn’t mean to imply that I thought it was good or bad–just different, and no one seems to be thinking about the implications of funding social programs with income taxes versus consumption taxes. Big difference, imho.

    If you assume the Fairtax might pass, (I definitely don’t), then revenue for social programs would come from sales taxes paid over one';s entire life, not just from payroll taxes during work years. Carried to some logical conclusion, this could mean that we don’t need Trust Funds or the Trustees anymore. Just pay any benefits from the general fund. And, since benefits couldn’t be tied to income anymore, so some sort of standard benefit for everyone might result. For instance, how about providing each individual with a poverty level income during retirement of $800/month. At roughly $10,000 per year, that part of the social safety net would cost $430 billion per year, not the $900 billion the government is collecting today.

    I’m not familiar with Libertarian plans to transition out of SS, but would be interested in your thoughts?

  44. matt cholko

    I’m 31, and I’ve been paying into SS for about 15 years now. I’ve been “promised” benefits too, and I know damn well that I won’t be receiving them. Don’t get me wrong, I may well receive a check for $1000 a month or something, but that check isn’t going to be worth anywhere near $1000 today.

    Lots of people (damn near everyone under currently under 45 or so) is going to be ripped off by Social Security “as we know it.” So, when one argues that we need to preserve the current system so that they don’t get screwed out of their benefits, they are essentially arguing in favor of screwing over their own children and grandchildren.

    It seems to me that everyone should shoulder some of the burden created by the SS scheme. Not just the young people.

  45. Bill Woolsey

    I am willing to tolerate the Fair Tax.

    A VAT, especially on top of other taxes, is competely unacceptable.

    I prefer higher income tax rates to that.

    But that is unacceptable too.

    The argument that it is easier to enforce may be true, but a national sales tax is more transparent.

    What libertarian wants taxes to be more hidden so they can be collected with less political problems?

    That a high tax rate is difficult to enforce is actually a feature, not a bug. It creates an incentive to have lower rates, which creates a smaller tax burden.

  46. George Phillies

    @51 Of course, you could have a VAT, and require that the VAT being paid by the consumer be separately enumerated on each bill, the same way sales tax is done in many states. I am not saying I like the VAT idea, because my retirement savings will be taxed twice, but there is a credible workaround to your objection.

  47. matt cholko

    BW @51 said – “What libertarian wants taxes to be more hidden so they can be collected with less political problems?”

    “That a high tax rate is difficult to enforce is actually a feature, not a bug. It creates an incentive to have lower rates, which creates a smaller tax burden.”

    Me – Good question, and I agree.

  48. matt cholko

    Any tax should be calculated at the time of sale so that the consumer actually sees that the $1.00 item actually costs them $1.30 due to taxation.

    This brings to mind one of the most disgusting aspects of our current income tax system – it is taken out of most people’s income automatically. If people had to write a check to uncle Sam for $20,000 every April, or a $5,000 check once per quarter (as I and most other small business owners do), I think they would be a whole lot less accepting of their tax rates. However, as it is now, most people feel like they are receiving a gift from the gubment when they get a refund for $2,000 of the $20,000 that they paid.

  49. JT

    Hank: “I didn’t mean to imply that I thought it was good or bad–just different, and no one seems to be thinking about the implications of funding social programs with income taxes versus consumption taxes.”

    In post 33, you wrote: “The Fairtax is a very bad plan, and should be scrapped.” That’s not an implication; it’s a straightforward statement that it’s very bad.

    I don’t really like the Fairtax. If there’s going to be a transition to zero income tax, I’d prefer the low flat tax with no exemptions I mentioned before. However, you’re speaking as if Libertarians think continuing federal social programs is good, and the only question is about how they should be funded. But that isn’t true. I and almost all Libertarians don’t think anybody should be funding any federal social programs with any taxes, whether income or consumption. We don’t think putting SS on life support and then pulling the plug is a bad thing.

    Hank: “I’m not familiar with Libertarian plans to transition out of SS, but would be interested in your thoughts?”

    Well there are more than one, but the essence of one idea I like is auctioning off all the federal assets that either the government doesn’t use or shouldn’t have. That should actually raise trillions of dollars that could potentially pay for annuities for all the people on SS or soon to be on it. Then everyone else is released from the federal payroll tax. This is a plan advocated by the late Harry Browne, two-time Libertarian candidate for President. Of course, as the number of beneficiaries increases while the number of workers decreases in the coming years, the revenue raised in an auction won’t go as far to cover owed benefits.

  50. Scott Greene

    The current U.S. Income Tax Code has been falling apart for years!

    Those who can afford armies of tax attorneys and CPA’s to navigate around this tax code and lobby the government for tax breaks are the ones who don’t pay income taxes.

    And those of us who cannot afford to lobby or pay for all the legal help necessary end up losing and paying.

    The Income Tax code is almost 75,000 pages long and that does not even include all the thousands and thousands and thousands and thousands of pages of tax publications, instruction booklets, revenue rulings and tax court cases.

    The only solution is the abolishment of the current Income Tax system as it cannot be fixed. The model does not work.

    Fighting over Fair Tax vs. Flat Tax is getting us nowhere. The solution is in getting rid of the current Income Tax system. Last time I looked it still exists and is getting worse all the time. The whole Income Tax code has turned into a bookkeeping nightmare. If you don’t believe me, just pick up any tax publication or tax court case and read it .

    Candidates who support abolishing the current Income Tax system need to be supported.
    Gary Johnson favors that. I support him and any other candidate who will get on the get rid of the current Income Tax system bandwagon.

  51. Robert Capozzi

    57 hvg, would you be so kind as to share the promissory language, then?

    Is Flemming v. Nestor no longer settled law?

  52. Robert Capozzi

    58 sg: Fighting over Fair Tax vs. Flat Tax is getting us nowhere. The solution is in getting rid of the current Income Tax system.

    me: Right. It’s non-controversial in L circles to say what you say. The question is: What is the optimal message in 2012 for a L prez candidate to advocate as a means to advance the cause of liberty?

    There is no “correct” answer here. Most LP members likely would say the FAIR Tax is not optimal, and in fact is counterproductive for this particular exercise. GJ will heed that counsel or he won’t. LP conventioneers will consider his position, and vote.

    I’d say it’d REALLY suck if GJ didn’t get the nomination because he won’t back off the FAIR Tax, given that otherwise he has all the makings of the best advocate for liberty as LP prez nominee ever.

    He may well get the nomination despite his FAIR Tax position. Odds are it will, however, deflate his candidacy’s base. I see no evidence that the specific “FAIR Tax” is going to get GJ huge non-LP support, either, so I’d say even as a political calculation, he’s likely to be lowering the ceiling on himself by clinging to the FAIR Tax.

    I hope my assessment is incorrect!

  53. Hank Van Gieson

    Robert#59,

    You can read your own report by emailing the SSA and asking for it.

    What is the number identifier of Flemming v Nestor? Thomas shows no hits for just the names.

    Thanks.

  54. Robert Capozzi

    61 hvg, from wiki: “Flemming v. Nestor, 363 U.S. 603 (1960), is a Supreme Court Case in which the Court upheld the Constitutionality of Section 1104 of the 1935 Social Security Act. In this Section, Congress reserved to itself the power to amend and revise the schedule of benefits.”

  55. zapper

    ATBAFT @ 45

    Yes, many people were taxed and still managed to save in the current system.

    Many others have accumulated massive amounts of savings tax free – some have billions of tax free dollars saved. So it goes.

    There are hundreds of variables and we can’t adjust for all of those things. We have to abandon the income tax and all of its past inequities. When we do, some will have lost more than others and there’s no fair way to adjust for that.

    Some individuals have been drafted into the military and been permanently disabled or killed, and we can’t adjust for that.

    Others have suffered all kinds of life losses at the hands of various government programs and departments, and we can’t adjust for that.

    The government doesn’t have and can never have enough assets to compensate those who have suffered past wrongs at its hands.

    We cannot adjust for winners and losers. In fact, as we move toward the new system there will be many who will attempt to game the system and become winners by making purchases prior to the implementation of the consumption tax and to delay income until after the repeal of the income tax. But, any attempt to add complicated rules to thwart this kind of arbitrage will likely make the system unweildy and still leave a group of cunning profiteers as winners. This will create disillusionment and resentment without adding fairness – in fact, in the end, the perception of fairness will be lessened.

    We Libertarians have to get on with elimination of the worst of the government to the fullest extent possible and leave in place a system for the future that results in the most liberty obtainable.

    Right Now we have an opportunity to lead in the area of taxation.

    The public is receptive as never before to the idea of eliminating the current tax system and starting over.

    We can eliminate all taxes at all levels of government and replace them all with a single tax on consumption.

    It should NOT be the Fair Tax with its built in redistribution. Gary Johnson will not get the LP nomination if he doesn’t dump his support of the “prebate.”

    But, the LP and Gary Johnson should take the lead in advocating the elimination of all taxes for the Federal Government and the States and replacing them with a single consumption tax.

    This consumption tax must be a flat rate on all new production of goods and services and universally applied. All other taxes must end.

    The tax should be visible, not hidden, with the total amount of tax charged, collected and paid included on the receipt for every transaction.

    Government spending must be cut – Johnson’s 43% is a good start – and no prebate included so as to yeild the lowest starting rate possible.

    Every individual must receive the same treatment – there must be no special accounts of dollars that can be spent taxfree and no special treatment by income level or type of products consumed.

    This will result in the greatest perception of fairness, the best outcome for all and the only chance of passing and implementing this kind of change in the near term.

    Even those who have some savings on which they have paid income tax already will come out ahead if they abandon their special interest and forego any attempt to gain some special treatment by the creation of special accounts.

    The fact that these people were able to pay tax and save means they will have cash on hand they can invest and they will earn more tax free income after the change than they would have had they spent the money – so they will be winners in the end.

    And the fact that these people were the type to save and invest before means they are likely to do so at even greater advantage after the change – so no special consideration is needed or wise.

    These are the people who will lose the most the longer we wait to move to a single-flat-tax on consumption system.

    Gary Johnson is part way there. He must abandon the prebate and then we should make the single flat rate consuption tax as a replacement for all forms of taxation a centerpiece of the Libertarian transition program toward a world of liberty.

  56. Ad Hoc

    Gary Johnson will not get the LP nomination if he doesn’t dump his support of the “prebate.”

    Really? Are you sure? I think he will, and I’m not a “fair tax” fan – I tend to agree with Chuck’s points in this article.

  57. Thomas L. Knapp

    It’s hard to get reliable numbers in LP nomination contests, because the samples are small and the various means of polling aren’t necessarily objective.

    However, Johnson took 70% in this weekend’s Florida LP straw poll.

    My impression is that Florida is, all things considered, one of the more radical-oriented state LPs.

    So, it’s my considered opinion that Johnson is, at the moment, pretty well set for the nomination.

  58. Ad Hoc

    Every individual must receive the same treatment – there must be no special accounts of dollars that can be spent taxfree and no special treatment by income level or type of products consumed.

    This will result in the greatest perception of fairness

    No, it will be perceived as being regressive, since those who inherited little or nothing and earn little have to spend everything or almost everything they make to survive, while other people with high levels of income/savings/inheritance can sock money away tax free, whether it be in investments, properties, or cash.

    You can certainly argue that this would be better for the economy, but there is no way around the fact that there will be a lot of people who will consider such a system unfair.

    The so-called prebate is an attempt to address that perceived unfairness, but as many here have pointed out it comes with its own set of problems.

  59. zapper

    The prebate will be seen by many as a built in welfare plan. This will be seen by the majority who actually work as an additional unfair income transfer program and prevent the passage of the Fair Tax and will derail the needed movement toward a consumption tax.

    In addition, the prebate is a massive expence that has to be funded and will cause the sales tax rate to be far higher. This will damage business and reduce employment causing poverty.

  60. zapper

    64 & 65

    The nomination battle is just starting. With weakness in his LP credibility in foreign policy, spending and taxation there are too many litmus test issues to beleive the LP delegates will stay on the Gary Johnson bandwagon – especially with the bad taste of Barr left in their mouths from 2008.

    Johnson needs to dump the prebate and embrace non-intervention.

    Then he will win the LP nomination.

  61. Ad Hoc

    The prebate will be seen by many as a built in welfare plan. This will be seen by the majority who actually work as an additional unfair income transfer program

    True

    and prevent the passage of the Fair Tax (sic)

    I wish, but I think it very well may pass, although the income tax sunset clause will probably be stripped or perpetually extended.

    And yes, a lot of people will consider a consumption tax without it to be regressive.

    In addition, the prebate is a massive expence that has to be funded and will cause the sales tax rate to be far higher. This will damage business and reduce employment causing poverty.

    True.

  62. Ad Hoc

    With weakness in his LP credibility in foreign policy, spending and taxation there are too many litmus test issues to beleive the LP delegates will stay on the Gary Johnson bandwagon – especially with the bad taste of Barr left in their mouths from 2008.

    I don’t think you are correct. Most of the same people that supported Barr are supporting Johnson, plus some that did not support Barr. I don’t think very many of them will stop supporting Johnson given what the other choices are.

  63. Jim Tall

    Chuck, I agree with John’s characterization of the FairTax.

    You can’t compare an inclusive rate with an exclusive rate, and if you make income tax rates exclusive they’re abysmal. If you want to compare exclusive rates look at how the 35% bracket comes up to near 50!

    Our products leave our shores with the current taxes embedded in their price where the VAT for products coming from overseas does not leave their shores. Therefore our products are at a huge disadvantage here and there. The FairTax levels this playing field.

    As for the infrastructure, most of that is in place with the state taxing authorities who will be paid a bounty for collecting it. I think only two states don’t have a sales tax infrastructure.

    Regardless of our ability to balance the budget in a year or 5 we will be paying down the debt and obligations we’ve racked up for decades and thinking that we will get by on tariff alone is truely junk economics.

    The regressiveness of the flat tax and the heinousness of the current system prove this the best alternative despite what many think of as flaws.

    Jim Tall, Treasurer LP Florida

  64. JT

    Tall: “The regressiveness of the flat tax and the heinousness of the current system prove this the best alternative despite what many think of as flaws.”

    I hate when I hear someone say that the flat tax is “regressive.” A progressive income tax is one in which the rate RISES with higher income levels. A regressive income tax is one in which the rate FALLS with higher income levels. A flat tax neither rises nor falls with different income levels. The fact that people with above-average incomes would pay a lower PERCENTAGE of their total income in taxes than people with below-average incomes (sometimes a dramatically lower percentage in the case of the very rich) doesn’t make the tax itself “regressive.”

    Admittedly, it would still be a hard sell to people who are steadfastly convinced that rich people should pay a higher proportion of their incomes in taxes. But if the rate is low enough, many people with below-average incomes who aren’t benefiting from government welfare programs may still support it.

  65. Hank Van Gieson

    Tall: “As for the infrastructure, most of that is in place with the state taxing authorities who will be paid a bounty for collecting it. I think only two states don’t have a sales tax infrastructure. ”

    Actually, five States do not have a sales tax structure, Alaska, Delaware, Montana, Oregon, and New Hampshire. But, what makes you think that any State will choose to act as the federal tax collector, the 1/4% “bounty” notwithstanding?

    What Fairtax advocates don’t seem to understand is that all 50 Governors, through the National Governors Association, are opposed to any kind of a national consumption tax. And, to make matters worse, HR25 proposes to have the federal government tax State and Local government operations, clearly unconstitutional under our federal form of government. Several Yale constitutional scholars agree that the Supreme Court would toss out this feature using the long held doctrine of intergovernmental tax immunity.

    The chances of the States cooperating with the Federal government on this matter range from slim to none, imho!

  66. Robert Capozzi

    72 jt: A regressive income tax is one in which the rate FALLS with higher income levels.

    me: Has there ever been such a tax? I don’t know of any.

    Technically, a progressive marginal tax rate structure involves step ups in the marginal rates.

    A sales tax is considered “regressive” in the sense that the effective tax rate on consumption will tend to be higher for the least well off. Generally, those with higher incomes have the ability to save and invest, which isn’t taxed, at higher percentages of total income.

    But, yes, these words get imprecise, slippery and elastic.

  67. Stephen Uhl

    Robert Capozzi, yes, indeed a straight sales tax would hit the poor relatively harder than the rich. BUT bring in the FairTax prebate and then the poor gain relative much more than the big spenders. For those spending less than $29,000/yr., all of them come out ahead (effectively paying no taxes); then the effective tax rate on SPENDING gradually increases from 0% up to about 22% for those who spend about $500,000 and above. (With the rebate, FairTax is by far “the fairest of them all!”)

  68. JT

    Capozzi: “Has there ever been such a tax? I don’t know of any.”

    I don’t either.

    Capozzi: “Technically, a progressive marginal tax rate structure involves step ups in the marginal rates.”

    Right. So we should compare apples to apples. The terms “progressive” and “regressive” refer to the relationship between the change in tax rate and the change in total income levels. If it’s a direct relationship, then the tax is progressive. If it’s an inverse relationship, then the tax is regressive. But the terms don’t refer to the relationship between the change in the percentage of total income taken and the change in income levels.

    Capozzi: “A sales tax is considered “regressive” in the sense that the effective tax rate on consumption will tend to be higher for the least well off.”

    No, the tax itself isn’t regressive. A single tax rate for every taxpayer isn’t regressive or progressive–that’s what the “flat” in “flat tax” means.

    It’s true that the proportion of total income taken as a result of the tax tends to be higher for current lower income earners because they have a smaller base to start with. However, a lower income earner may still be a net beneficiary by having a smaller percentage of his or her money taken under a flat tax than under the current progressive income tax system.

  69. Stephen Uhl

    WHO CONTROLS ROMNEY?

    This Washington-connected, lobbyist-controlled man, do you think he could be trusted to meet the PEOPLE’s needs? Or do you think he just might be the head fox guarding our henhouse?

    It is truly disgraceful and undemocratic what has developed in the Republican primary process: the candidate with the most money can throw the most mud, lie the most cleverly and race to the top in the polls (and now Obama, too, goes to the superpacs).

    Is it time to look for an independent candidate??

    I challenge you to evaluate the following points as to how they would insure our freedom and security again:

    – I support a woman’s right to choose.
    – I support marriage equality for gay Americans as required by the Constitution.
    – I support legalization of marijuana, which will save us billions and do no harm.
    – I support returning strict adherence to Constitutional principles to our government.
    – I oppose expensive foreign wars in places like Libya and Afghanistan.
    – I want to end deficit spending and cut federal spending by 43%.
    – I want to enact the Fair Tax to stimulate real economic growth and jobs.
    – I want to end the manipulation of our money by the Federal Reserve.

    These (above) are the principles of Gary Johnson, probably the most successful governor New Mexico ever had (for 2 terms). And because of his moderation (a DIRTY term?), he was forced from the Republican debates and into his third-party run as a Libertarian. (He chose ‘Libertarian’ in order to get onto all 50 states’ ballots, but ‘a rose by any other name would still smell as sweet.’)

    If we the people keep ignoring this commonsense candidate, we will get another fox to guard our henhouse; it’s time for us moderates to give this man some attention.

    TOGETHER we can, indeed, make this time different.

  70. JT

    Stephen: “BUT bring in the FairTax prebate and then the poor gain relative much more than the big spenders.”

    Why should this be framed as a class comparison between how much current lower earners gain relative to the current higher earners?? The real question is whether people at all income levels gain relative to what they pay today. If the flat tax is low enough, then for the vast majority of people the answer is yes. We should be letting people at all income levels keep more of the money they’ve earned–not giving everybody a government handout.

  71. Robert Capozzi

    76 jt: No, the tax itself isn’t regressive. A single tax rate for every taxpayer isn’t regressive or progressive–that’s what the “flat” in “flat tax” means.

    me: To my knowledge, the term “flat tax” refers more properly to a flat-rate income tax, not a sales tax. I agree that a flat-rate income tax is not “regressive,” per se, but simply “flat.”

    Assuming revenue neutrality, a shift from the current tax system to a flat-rate tax would shift the tax burden from the higher income folk to lower income folk. Some would refer to that as “regressive,” but I agree it’s not technically “regressive” in the rate structure. Unless a large exemption were in place, advocating such a shift would meet with howls of “unfairness,” and I can see why opponents would say so.

    There’s probably a better, accurate word for this than “regressive,” but it certainly has a Social Darwinist feel to it, in concept.

  72. Hank Van Gieson

    Stephen Uhl#75,

    “(With the rebate, FairTax is by far “the fairest of them all!”)”

    Not really, Stephen. Even with the prebate, middle class retirees all get hurt economically by the Fairtax. Think about it, man. Middle class retirees don’t pay much in the way of income taxes, and of course make no payroll contributions. Under the Fairtax, the only income gain would be the prebate, and for a retired couple of two, the $5,000 prebate doesn’t begin to offset the sales taxes paid.

    Not only will retirees be forced to resume paying for their SS benefits with their sales tax dollars, but their purchasing power would be reduced significantly.

    The Fairtax isn’t fair!

  73. Tom Blanton

    Is there really anyone who thinks Gary Johnson could possibly win the general election for President?

    Can he raise the $200,000,000 necessary to run a modest campaign, or the $500,000,000 needed to run the type of campaign that Obama and the GOP nominee will run?

    The only thing Johnson can do worthwhile, from a libertarian perspective, is to effectively articulate libertarian principles to as many people as possible.

    The question should be: Is the Fair Tax something that should be considered a libertarian position?

  74. JT

    Capozzi: “To my knowledge, the term “flat tax” refers more properly to a flat-rate income tax, not a sales tax.”

    People use the term “flat” to refer to an income tax in order to contrast it with the current progressive income tax structure. Since there’s no progressive sales tax structure, nobody sees the need to use the term “flat.” But a single tax rate for every taxpayer, regardless of what the tax is levied on, is a flat tax.

    Capozzi: “Assuming revenue neutrality, a shift from the current tax system to a flat-rate tax would shift the tax burden from the higher income folk to lower income folk.”

    I’m not assuming “revenue neutrality.” I’m talking about a low flat income tax (lower than the lowest 10% income tax bracket today) coupled with a large reduction in federal spending.

    Capozzi: “Unless a large exemption were in place, advocating such a shift would meet with howls of “unfairness,” and I can see why opponents would say so.”

    Some people will howl “unfairness” no matter what. They do today even though the bottom 50% of income earners pay less than 5% of all income taxes. But if the flat income tax is low enough, it may still be a net benefit to many of them.

  75. Brill Blackburn

    Chuck, I agree. I think #3 is the greatest danger. “Fair” is a four-letter word in politics, and it usually means someone’s about to get screwed. Every time Johnson utters the word “FairTax”, it reminds me why I shouldn’t support him. The problem is that, should this thing ever be implemented in whatever mutation might come before Congress, we’re going to have to explain to people that a Libertarian supported a NEW TAX. And that’s just not acceptable to me. As much as I like Johnson’s stances on other issues, I’ll almost certainly support Lee Wrights in Vegas. With Wrights, I won’t have to worry about him, his positions are straight in line with libertarian principles.

  76. Robert Capozzi

    84 jt: I’m not assuming “revenue neutrality.” I’m talking about a low flat income tax (lower than the lowest 10% income tax bracket today) coupled with a large reduction in federal spending.

    me: Yes, and I’d prefer that GJ took that position over the FAIR Tax and his 43% cut. At this stage in the game, though, I would prefer even more to propose submitting a balanced budget. My guess is an 8% flat tax with a 43% cut would STILL generate deficits.

    Inter-income-bracket fairness is, of course, not a precise thing. But a massive shift toward the lower-income end of things is IMO poor positioning of the LP. It plays into the worst aspects of the narrative that Ls and free marketeers have contempt for the poor.

    81 tb: Is there really anyone who thinks Gary Johnson could possibly win the general election for President?

    me: Possible? Yes, in an extremely remote way.

    tb: The question should be: Is the Fair Tax something that should be considered a libertarian position?

    me: Yes, because some Ls advocate it. I’m not one of them. In my case, I suggested it be dropped.

    What mechanism do you suggest for what is or is not a “L position”? Some might want to have a seance to conjure up the ghost of Rothbard to tell us. Others might posit simplistic syllogisms to “prove” whether some position is L or not?

    What’s yours?

  77. Robert Capozzi

    more to JT….

    Depending on how it’s structured, your flat tax could INCREASE taxes on the poorest and substantially cut them on the most affluent, even at lower aggregate revenue.

    Do you think that’s a good idea for Ls to advocate?

  78. JT

    Capozzi: “Depending on how it’s structured, your flat tax could INCREASE taxes on the poorest and substantially cut them on the most affluent, even at lower aggregate revenue.”

    Well it would substantially cut taxes for not only the higher income but also for the middle income Americans, and some lower income American would benefit to some extent. There are many very low income Americans who don’t pay any income tax. For them, either a flat income tax or national sales tax, no matter what the rate, obviously wouldn’t be good. I’m not sure how I feel about an exemption up to a certain income level (for everyone). If that were the only way to actually implement it (which it probably would be), then I imagine I’d support it.

  79. Tom Blanton

    What mechanism do you suggest for what is or is not a “L position”?

    The Capozzi Mechanism. If The Capozzi affirms that something is a “L position”, then it should be immediately rejected as a “L position”.

    Just kidding Bubby, for the lulz.

    The only “libertarians” I’ve seen that are really behind the Fair Tax are actually disgruntled conservative opportunists that believe the LP can actually elect candidates in national elections if they adopt positions that disgruntled conservatives like – crap like the Fair Tax and loads of blather about supporting Israel.

    The Fair Tax is nothing but statist wonkery. There is a better chance that Wayne Root will restore respectability to the LP than the Fair Tax will “restore freedom” to America. It’s all bullshit and nonsense.

  80. matt cholko

    TB-” The Fair Tax is nothing but statist wonkery. There is a better chance that Wayne Root will restore respectability to the LP than the Fair Tax will “restore freedom” to America. It’s all bullshit and nonsense.”

    Me – That’s an excellent way to put it, and I agree 100%

    TB – “The question should be: Is the Fair Tax something that should be considered a libertarian position?”

    Me – Again, I agree 100%. The LP’s Presidential candidate serves one purpose – spreading the (a?) libertarian message. If the message he is spreading isn’t a libertarian one, then he is of no use whatsoever.

    Actually, I guess he serves one other purpose – preserving and/or expanding ballot access for the LP. It seems doubtful that selling some unlibertarian message would do much/anything to expand ballot access. But, even if it was a huge success in terms of ballot access, what good does that ballot access do once the libertarianism has been dropped from the LP?

  81. Hardy

    On Mar 20, 2012, at 2:10 AM, chuckmou1ton wrote:

    DISGUSTS me both as a libertarian and as an economist

    A consumption tax disgusts you more than dozen separate income taxes/payroll taxes and IRS and 16th amendment? What disgusts you?

    You write: “Jeffrey Miron will find many of these concerns to be very legitimate.” Did you watch the town hall with Jeffrey Miron? I don’t know what happen to the archive of the event. I’m checking to see if Yowie just misplaced it. Miron agreed the consumption tax is the best tax. The nitpicking details all get hashed out later, but the idea is to push for major overhaul of our costly, complex, and corrupt tax system and I see no radical pushing for that.

    Main libertarian objections to the Fair Tax:
    1. The prebate would start a new welfare entitlement.

    The prebate replaces the earned income tax credit and exemption on your current income taxes. Nothing new here. And it is only a prebate on taxes paid, it’s not above and beyond — so you are giving everyone the same exact tax break up to the poverty line. Although instead of dismissing the FairTax bill out of hand, because it’s something that could be passed, I’d rather push for something like no children born after the bill is passed will qualify for the prebate — this weans us completely off it, or maybe the prebate is only 75% of the taxes you pay up to the poverty level.

    >when people start receiving a government checks in the mail it will create a new political constituency

    You mean like the >50% of the population who are receiving SS, welfare, student loans, medicare, food stamps now… The political constituency that is created is “everyone” in America. It’s not a new constituency, but you wipe out all the special interest and now every person is the same.

    So you want a bigger prebate? Then the consumption tax goes up automatically so any increase in prebate doesn’t gain the beggars anything since they just pay more when they buy stuff. This works the other way, though also… Because that same exact constituency will be outraged when the consumption tax is increased and would prefer to see their taxes decreased so politicians have an initiative to decrease the consumption tax. We could cut the 30% exclusive tax to 20% and remove the prebate, but it’s tougher to get a regressive consumption only tax bill passed — Miron talked about the regressivity of consumption taxes in town hall.

    2. The transition would redistribute from savers to borrowers.

    There will be a transition cost. I’d rather it be quick than dragging out our current system, and you even claim it’s not a deal breaker. Yes, people who rack up a lot of debt on credit cards have paid embedded taxes already and won’t pay twice and will pay off their debt untaxes, but will pay tax on their unpaid interest paid so it behooves them to pay down their debt quickly or for credit card companies to offer low interest rates.

    Those who have retired might have saved pre-tax or post-tax…but their spending doesn’t change. The FairTax puts the hidden taxes on their receipt. It’s shifted around a bit, but they end up paying about the same in taxes and same price for the goods in a fairly short amount of time.

    3. There is a danger of getting BOTH an income AND a consumption tax.

    As you point out the original FairTax bill did leave this possibility open and the bill sponsors heard the complaints and fixed the bill. I think they could make the bill even better by having the FairTax implementation start after the repeal of the 16th Amendment…and the 28th Amendment could also include the consumption tax as the only tax or a variety of stipulations to quell this fear entirely. Lowering the voting age amendment passed in 6 months. The FairTax amendment could pass just as quickly if the president uses his first 90 days in office to push all the states to pass such a constitutional amendment. The states gain with the FairTax too since they are the tax collectors again in the 45 states with a sales tax. If CA is upset over something the feds are doing they could without their tax payment or a block of states could and we’d be returning to more of a balancing of power between the feds and the states.

    4. Advocates disingenuously quote a 23% rate when it is actually 30%.

    I think it should be pitched as 30% too since it makes our government sound even bigger. And when they want to compare it to the inclusive tax rates such as personal and corporate income tax rates of 35% then adjust the inclusive tax rates up to make it the amount as if it was exclusive so we don’t have 35% corporate tax rate, but a 54% exclusive corporate tax rate.

    Johnson does qualify it most of the time by use of examples though. He’ll use an example of a $1 bottle of coke with a 23% tax includes in the price.

    5. Advocates use protectionist rhetoric to sway populists. … While populist protectionist rhetoric may play well with the general public, it turns off libertarians

    You are the only libertarian I’ve heard of who was turned off by this. It is what it is and it’s a populist sales point.

    Another sales point is that the FairTax is a green tax. It encourages recycling/reuse by not double taxing use goods.

    If you are looking for another point then argue that when you tax something it reduces the demand for it so a consumption tax will reduce the demand for consuming which could have a major affect on Walmart of the world when buyers start shifting away from the consume everything mindset we currently have….

    So the anti-consumer, green, and made-in-america groups could jump on board about this, but libertarians should oppose anything that has side effects that some groups might like.

    They are far more excited about Ron Paul’s plan to eliminate the income tax and replace it with nothing

    What plan is that?

    Paul’s tax and budget plan takes three years to get to a balanced budget and then all he does is reduce the corporate income tax to 15%. No where in his plan does he work on getting rid of the IRS.

    It’s an applause line he uses that his actually plan doesn’t even include and people get hooked on it every time, but an applause line is all that it is. I’m very sorry so many people keep getting suckered by it.

    Johnson on the other hand has a plan to abolish the IRS, repeal the 16th amendment, and wants to balance the budget in his first year in office.

    Finally there is a contingent of radical libertarians who will be turned off by any advocacy of any tax — even a tax that is lower or more efficient or fairer than a current tax

    Yeah, no one is perfect, but they’d rather have Ron Paul pushing for $65k tax breaks for long haul natural gas trucks because it’s using the current system of corruption to get things done, while they sit on the side lines and not vote because it only validates the system and yell that the only good tax is no tax and they wont’ settle for anything but complete and immediate privatization of all government functions and 0 taxes.

    Sorry, I want to get things accomplished and as a small business owner I’m sick of the IRS and complying with schedule Cs and trying to hire employees that take me 30 days longer than it should because of payroll tax issues. The FairTax is a big step in the right direction to tax reform. There are some improvements that can be made for it and that is where the energy should be used.

  82. Common Tater

    The prebate replaces the earned income tax credit and exemption on your current income taxes. Nothing new here.

    There’s a huge difference.

  83. CommonTater

    >when people start receiving a government checks in the mail it will create a new political constituency

    You mean like the >50% of the population who are receiving SS, welfare, student loans, medicare, food stamps now…

    So by all means let’s make that >50% into 95%.

    Right?

  84. CommonTater

    I think they could make the bill even better by having the FairTax implementation start after the repeal of the 16th Amendment…

    Yeah, that would be kind of a big deal.

  85. Thomas L. Knapp

    Hardy@93,

    “The prebate replaces the earned income tax credit and exemption on your current income taxes. Nothing new here. And it is only a prebate on taxes paid, it’s not above and beyond”

    The “prebate” is a monthly check to every warm body in the United States which is issued regardless of whether or not that warm body has paid, or will pay, any particular amount of tax or even any tax at all.

    Some of us will never be convinced to support the “Fair” Tax, but some might if its proponents would stop lying about its features.

  86. Common Tater

    Johnson does qualify it most of the time by use of examples though. He’ll use an example of a $1 bottle of coke with a 23% tax includes in the price.

    So the shelf price will include the tax? Or not?

    I’ve heard a lot of double talk on that one.

    My guess is that it will include the tax, making a lot of unintelligent (or selectively intelligent) people believe (or should I say feel) that they are paying no tax at all and receiving free money (“prebate” check) from the government.

    Yeah, that will be good for fiscal sanity.

  87. Ed Vallejo

    When Bob Schieffer whipped out an old quote stating “Taxes are immoral” on Ron Paul one Sunday morning not too long ago, he replied “Well, I can qualify that if allowed – TAXATION IS THEFT!”

    Continue to quibble here on the allowable amount that can be taken from Citizens and inadvertantly out the percentage of ‘libertarian’ you are NOT…

    WILL Mr. Johnson be forthcoming with an official response to Mr. Moulton? Will it be misdirection away from the fact pointed out by 1988 Libertarian Presidential Candidate Cpt. Dr. Congressman Paul? Would this comment make Michael Badnarik smile?

    Maybe.

  88. Common Tater

    @99 How does that applause line compare with the detailed plan Ron Paul has actually submitted though?

  89. Thomas L. Knapp

    CT@98,

    “So the shelf price will include the tax? Or not?”

    That is an interesting question.

    At least one state — the only one I know of because I happen to live in it — prohibits inclusion of sales taxes in prices by law.

    That is, stores are required by law to add sales taxes at the register, not just include them in the shelf price.

    Presumably the purpose of that law is to make customers aware of how much tax they’re paying.

    Personally, I oppose such a legal requirement.

    If a store wants to just include the tax in the shelf price to make it easier for customers to calculate their total bills while shopping, they should be able to.

    Conversely, if a store wants to show the customer “we’re only charging you X for the product, it’s the government adding Y onto that,” by adding the taxes at the register, they should be free to do that too.

  90. Robert Capozzi

    99 ev: Continue to quibble here on the allowable amount that can be taken from Citizens and inadvertantly out the percentage of ‘libertarian’ you are NOT…

    me: Interesting and provocative concept here, esp. the word “allowable.” In a sense, the current level of taxation is “allowable” for virtually everyone who is not a tax evader or protestor, since they are paying their taxes.

    Why do you think a Libertarian-ometer is a valuable exercise? It feels like a holier-than-thou exercise of no consequence.

    In my case, I advocate that taxes be as low as possible while maintaining a semblance of domestic tranquility. I don’t advocate making taxes zero tomorrow because a) it’d be futile to do so; and b) if somehow it weren’t futile, it would be risky, riskier than even the current configuration.

  91. Chuck Moulton

    I didn’t notice that Hardy posted here too. I’ll post my response.

    Hardy Macia wrote (@93):

    A consumption tax disgusts you more than dozen separate income taxes/payroll taxes and IRS and 16th amendment? What disgusts you?

    I’ve been very clear about the difference between advocacy for a consumption tax in general replacing all those taxes and the Fair Tax in particular replacing all those taxes. I’m fine with the former, I oppose the latter.

    On the Norquist town hall Johnson went out of his way over and over again to clarify he’s not just for a consumption tax in general, but for the Fair Tax in particular.

    Hardy Macia wrote (@93):

    You write: “Jeffrey Miron will find many of these concerns to be very legitimate.” Did you watch the town hall with Jeffrey Miron?

    I did. It was the first time I had seen Miron advocate for the Fair Tax in particular rather than a consumption tax in general. But yes, Miron was on board.

    Hardy Macia wrote (@93):

    The prebate replaces the earned income tax credit and exemption on your current income taxes. Nothing new here. And it is only a prebate on taxes paid, it’s not above and beyond — so you are giving everyone the same exact tax break up to the poverty line.

    That totally misunderstands the prebate. If a person grows his own food and buys all used goods, then he pays no taxes and still gets a prebate check.

    Hardy Macia wrote (@93):

    Although instead of dismissing the FairTax bill out of hand, because it’s something that could be passed, I’d rather push for something like no children born after the bill is passed will qualify for the prebate — this weans us completely off it, or maybe the prebate is only 50% or 75% of the taxes you pay up to the poverty level.

    There are many ways to make the Fair Tax less of a problem. This idea is certainly one of them. But Johnson is very clear that he supports the Fair Tax as a total package as is — he does not make a qualification of needing the prebate problem to be fixed.

    Chuck Moulton wrote:

    when people start receiving a government checks in the mail it will create a new political constituency

    Hardy Macia wrote (@93):

    You mean like the >50% of the population who are receiving SS, welfare, student loans, medicare, food stamps now… The political constituency that is created is “everyone” in America. It’s not a new constituency, but you wipe out all the special interest and now every person is the same.

    There are existing bad political constituencies. The Fair Tax will not eliminate welfare, student loans, medicare, or food stamps. It leaves all those political constituencies intact and creates a new one for the prebate check.

    Hardy Macia wrote (@93):

    So you want a bigger prebate? Then the consumption tax goes up automatically so any increase in prebate doesn’t gain the beggars anything since they just pay more when they buy stuff. This works the other way, though also… Because that same exact constituency will be outraged when the consumption tax is increased and would prefer to see their taxes decreased so politicians have an initiative to decrease the consumption tax. We could cut the 30% exclusive tax to 20% and remove the prebate, but it’s tougher to get a regressive consumption only tax bill passed — Miron talked about the regressivity of consumption taxes in town hall.

    The idea that the prebate can’t be increased without increasing the consumption tax totally misunderstands the way congress passes laws.

    Chuck Moulton wrote:

    3. There is a danger of getting BOTH an income AND a consumption tax.

    Hardy Macia wrote (@93):

    As you point out the original FairTax bill did leave this possibility open and the bill sponsors heard the complaints and fixed the bill. I think they could make the bill even better by having the FairTax implementation start after the repeal of the 16th Amendment…and the 28th Amendment could also include the consumption tax as the only tax or a variety of stipulations to quell this fear entirely. Lowering the voting age amendment passed in 6 months. The FairTax amendment could pass just as quickly if the president uses his first 90 days in office to push all the states to pass such a constitutional amendment.

    The Fair Tax is not a proposal for a 28th amendment stopping all other taxes. It is a proposal for a statutory repeal of all those other taxes that sunsets if a constitutional amendment doesn’t repeal the 16th amendment.

    Again you are arguing about a different proposal that would be more libertarian. Johnson has supported the Fair Tax as is. He has not said he would only support the Fair Tax if a constitutional amendment eliminated all other taxes.

    Going by the actual text of the Fair Tax, it is contingent on the 16th amendment being repealed. Repeal of the 16th amendment doesn’t prevent an income tax on wages (which the supreme court ruled doesn’t need to be apportioned before the 16th amendment) or an income tax on investment income or corporate income (which would need to be apportioned among the states by population without the 16th amendment).

    Grover Norquist said during the town hall that he was very worried about getting BOTH an income AND a consumption tax.

    Chuck Moulton wrote:

    4. Advocates disingenuously quote a 23% rate when it is actually 30%.

    Hardy Macia wrote (@93):

    Johnson does qualify it most of the time by use of examples though. He’ll use an example of a $1 bottle of coke with a 23% tax includes [sic] in the price.

    His examples all use 23%. He says a $1 bottle of coke would cost 23% less without the corporate tax, then the Fair Tax would add 23% to the cost, so all goods and services would cost the same amount, yet we’d have no income tax. Not only is that bad math (0.77 * 1.23 != 1), but it also demonstrates the double counting of benefits problem where he claims the Fair Tax is a free lunch (no income tax without any cost at all in government revenue loss or distortions in goods prices).

    Chuck Moulton wrote:

    5. Advocates use protectionist rhetoric to sway populists. … While populist protectionist rhetoric may play well with the general public, it turns off libertarians

    Hardy Macia wrote (@93):

    You are the only libertarian I’ve heard of who was turned off by this. It is what it is and it’s a populist sales point.

    I’ve heard some other libertarians on this list* gripe about this. Perhaps they will chime in.

    * this list = the radical caucus list where this discussion originally happened

    Hardy Macia wrote (@93):

    Another sales point is that the FairTax is a green tax. It encourages recycling/reuse by not double taxing use goods.

    It distorts the goods market. Some of the distortions will be “green”, others will not be “green”. For example, having older, less fuel efficient cars on the roads longer doesn’t seem green to me.

    Hardy Macia wrote (@93):

    If you are looking for another point then argue that when you tax something it reduces the demand for it so a consumption tax will reduce the demand for consuming which could have a major affect on Walmart of the world when buyers start shifting away from the consume everything mindset we currently have….

    So the anti-consumer, green, and made-in-america groups could jump on board about this, but libertarians should oppose anything that has side effects that some groups might like.

    Every tax distorts human behavior. Yes, the Fair Tax will distort consumption.

    Chuck Moulton wrote:

    They are far more excited about Ron Paul’s plan to eliminate the income tax and replace it with nothing

    Hardy Macia wrote (@93):

    What plan is that?

    Ron Paul website – issues – taxes

    As President, Ron Paul will support a Liberty Amendment to the Constitution to abolish the income and death taxes. And he will be proud to be the one who finally turns off the lights at the IRS for good.

    quotes from Ron Paul’s public statements

    Ron Paul: We have to cut spending. You can’t get rid of the income tax if you don’t get rid of some spending. But, you know, if you got rid of the income tax today you’d have about as much revenue as we had 10 years ago, and the size of government wasn’t all that bad 10 years ago. There’re sources of revenues other than the income tax. You have tariff, excise taxes, user fees, highway fees. So, so there’s still a lot of money. But the real problem is spending. But, you know, we lived a long time in this country without an income tax. Up until 1913 we didn’t have it.

    Liberty Amendment

    Section 4. Three years after the ratification of this amendment the sixteenth article of amendments to the Constitution of the United States shall stand repealed and thereafter Congress shall not levy taxes on personal incomes, estates, and/or gifts.

    Hardy Macia wrote (@93):

    Paul’s tax and budget plan takes three years to get to a balanced budget and then all he does is reduce the corporate income tax to 15%. No where in his plan does he work on getting rid of the IRS.

    It’s an applause line he uses that his actually plan doesn’t even include and people get hooked on it every time, but an applause line is all that it is. I’m very sorry so many people keep getting suckered by it.

    Johnson on the other hand has a plan to abolish the IRS, repeal the 16th amendment, and wants to balance the budget in his first year in office.

    Paul has many different plans. The one plan you looked at didn’t eliminate the income tax. Others do. See the Liberty Amendment.

    Chuck Moulton wrote:

    Finally there is a contingent of radical libertarians who will be turned off by any advocacy of any tax — even a tax that is lower or more efficient or fairer than a current tax

    Hardy Macia wrote (@93):

    Yeah, no one is perfect, but they’d rather have Ron Paul pushing for $65k tax breaks for long haul natural gas trucks because it’s using the current system of corruption to get things done, while they sit on the side lines and not vote because it only validates the system and yell that the only good tax is no tax and they wont’ settle for anything but complete and immediate privatization of all government functions and 0 taxes.

    Ron Paul seems to be getting quite a lot of votes. I don’t see a lot of people sitting on the sidelines.

    Hardy Macia wrote (@93):

    Sorry, I want to get things accomplished and as a small business owner I’m sick of the IRS and complying with schedule Cs and trying to hire employees that take me 30 days longer than it should because of payroll tax issues. The FairTax is a big step in the right direction to tax reform. There are some improvements that can be made for it and that is where the energy should be used.

    A consumption tax replacing all those other taxes would be a step in the right direction. The Fair Tax is a big step in the wrong direction.

  92. Chuck Moulton

    From a discussion list (I’ll keep the person anonymous and he can identify himself if he wants):

    I could still get enthusiastic about [Gary Johnson's] campaign if it were mostly about other issues. But if Johnson continues to push the Fair Tax as his major issue (or even one of his “top three”), I’m going to be very reluctant to give him active support. I’m just too afraid that the practical effect of any contribution I make, either financial or volunteer, will end up being to promote this tax (which I don’t personally favor) and to muddy the public perception of the libertarian message. That’s simply not how I want to be spending my time/money.

    Exactly!!!

    That’s what the Johnson campaign doesn’t get. The campaign focus — the top 3 issues — should be libertarian issues. They should not be unlibertarian issues and they should not be orthogonal* issues. If the Fair Tax were a side issue it wouldn’t be nearly as objectionable.

    The problem is he is Gary “Fair Tax” Johnson. And I don’t want to be branded as the Libertarian “Fair Tax” Party.

    * orthogonal = neither libertarian nor unlibertarian

  93. Robert Capozzi

    cm, yes, it’s inexplicable that GJ is not at least downplaying the specific FAIR Tax plan.

    I’d like to understand why…

  94. Thane Eichenauer

    @106
    I would say that the reason is that Johnson (and the Fair Taxers) know that the income tax is unpopular and think that a plan to replace tax X with tax Y with tax Y supposedly being “better”. It is a method to gain support (in people and dollars) you would not otherwise get. Given that sales tax vs. income tax is an orthogonal argument libertarians say yawn but not all voters (or donors) are libertarian.
    I imagine the Fair Tax issue is to Gary Johnson as “secure the border” issue is to Ron Paul.

  95. Thane Eichenauer

    @106 @107 @107 You all may be correct in your sentiments but the real question is “Is the Fair Tax a poison issue that no Libertarian (and specifically Johnson) should ever EVER support?”. And don’t jump at the opportunity to say yes. Johnson is a smart guy, Johnson has vetoed plenty of spending, Johnson apart from the Fair Tax (and a couple of nibbly other angles) is a good enough Libertarian. As a nominee he would have the opportunity to continue selling the idea of legalizing marijuana, as a nominee he would have the opportunity to continue to sell the idea of auditing the federal reserve (and so on).
    I have seen Lee Wrights in person and found him and his ideas and focus to be very appealing. Given that politics is a contest of selling freedom ideas to the maximum number of people in any given political season I certainly think that Wrights has a challenging pre-convention season. He can certainly persuade Libertarians but when I predict the number of media opportunities Gary Johnson would have times his 90% pure Libertarian platform with Wrights and his 100% pure Libertarian platform and how many TV and radio ops he will have the calculation can easily tip in favor of Mr. Johnson.

  96. B4Liberty

    @112 – Wes, Chuck Moulton would be a fantastic LNC Vice-chair candidate.

    I especially liked that Chuck kept track of how everyone on the LNC voted on the issues – and passing that info out in Denver. Now so much is done in exec. session and on private e-mail lists that there is no telling what deals are being made.

  97. Dan Reale

    The unFair Tax has the same problem as the current tax – you’re still an unlimited ATM for Washington and it can still have enough reach into your life to control most every consumer decision you make at some level.

  98. Robert Capozzi

    103 cm: If a person grows his own food and buys all used goods, then he pays no taxes and still gets a prebate check.

    me: I’m generally with you on the FAIR Tax, but this hypothetical seems far fetched. Yes, we might see a slight shift toward home gardening and the Salvation Army store might do a bit better under the FAIR Tax, but IMO your point here is too weak to even suggest.

    110 te, yes, that could be what’s going on with GJ. My sense is that a small subset of LP members are FAIR Taxers, so it doesn’t help him get the nomination…it probably hurts him. It also probably doesn’t help him with fundraising in the party, either.

    He probably can secure the nomination DESPITE the FAIR Tax. Where it gets inexplicable is my sense that the FAIR Tax isn’t all that popular OR appealling outside the LP, either. The MUCH larger fiscal conservative community has moved on to spending cuts vs. tax reform as its top issue.

    If so, why alienate the LP base for little pickup outside the base?

    It may well be like RP’s “secure the borders” inoculating position, but I see that as simply a commonsensical view that very few would disagree with, at least broadly speaking.

    The FAIR Tax is not that. How taxes are raised could take a wide range of forms, none of which is obviously intuitively superior.

  99. Starchild

    Besides the numerous practical problems that Chuck Moulton and others have pointed out, a major negative of this plan to engage in fiscal engineering by redistributing the government tax burden is calling it the “Fair Tax”.

    It would be somewhat more acceptable were it simply described as the “Consumption Tax” or “National Sales Tax”. As has often been pointed out, no coercive tax is fair; some are simply less unfair than others.

    Calling a coercive tax “fair” in order to market it violates the key requirement that incremental steps toward freedom must meet in order to have legitimacy — to qualify as reform, a proposal cannot sell out ultimate goals or place additional obstacles along the path toward further incremental reforms.

    In this case, we don’t want to have to explain down the road, “Well, no, this tax really isn’t fair — when the Libertarian candidate called it a ‘Fair Tax’, that was just a convenient label to get people to support it. Now we want your help getting rid of it because it’s actually unfair…” — No. People who muddy a message that way damage both its credibility, and their own.

  100. Robert Capozzi

    116 sc, yes, optics are very important in politics. I’d say optics are even MORE important for a third-party candidate who has no real chance of winning. (Electable candidates might get elected and have to own up to his/her positions during the campaign.)

    Personally, I would not be concerned as you are about “down the road” hypotheticals, since the LP is IMO hopelessly hamstrung with the extremism in the SoP. Barring a major change in the nation’s thought stream, I can’t imagine more than maybe a few at most Bernie Sanders-type Ls getting elected to a federal office…it takes hours to attempt to explain what “cult of the omnipotent State” means, after all. That form of self-sabotage all but ensures that the LP won’t have to justify in the future that it had a candidate who advocated the FAIR tax.

    I don’t agree that there cannot be some relative fairness in a tax system. Once government is instituted, revenues are necessary to pay for that service. Taxing people into poverty seems unfair to me. Confiscating too large a percentage of a person’s income also seems unfair to me. I suspect that there’s a consensus on these two extremes, and a fair tax system would fall somewhere between those extremes.

    I do agree, though, that “fairness” cannot be determined with any precision. A coercion-less social order may be nice to fantasize about, but the kingdom of Heaven continues to evade us.

  101. Thomas L. Knapp

    RC@115,

    “I’m generally with you on the FAIR Tax, but this hypothetical (people growing their own food and buying all their stuff used) seems far fetched. Yes, we might see a slight shift toward home gardening and the Salvation Army store might do a bit better under the FAIR Tax, but IMO your point here is too weak to even suggest.”

    OK, then, try thinking of the transition period and bigger-ticket items.

    The day after the “Fair” Tax goes into effect, the prices of new homes and new cars go up by 30%.

    The prices of used homes and used cars do not.

    Over time that price differential will minimize as:

    1) The economic impact of built-in tax costs “washes out” of new production; and

    2) Increased demand for the used items drives their prices up toward the price of new goods.

    In the meantime, though, do you think the proposition that new home and new car sales will go straight into the toilet is “too weak to even suggest?”

    As you may or may not have noticed, new car and new home sales have already been ailing for years.

    How many American auto companies and contractors will be left in business at the end of the transition period?

    My guess is “more than one would predict,” since the ink won’t be dry on the “Fair” Tax before the auto and homebuilding industry lobbies have successfully bought legislated exemptions for their products. Whether they’ll be ahead of or behind the farmers, the pharmaceutical companies, et. al in getting things RIGHT BACK THE WAY THEY WERE is anyone’s guess.

  102. Robert Capozzi

    tk, first, no, new home and car sales won’t go into the toilet because the FAIR Tax ain’t gonna happen. I’d put GJ’s election in 2012 as prez at maybe 1%, but even with him in the WH, I’d put his chances of getting a FAIR Tax passed at 1% of the 1%. The obstacles to such a massive overhaul are tremendously large.

    As a hypothetical exercise, I’m too much of an Austrian to say just how much prices will shift on Day One on new homes and cars or used ones.

    My critique of CM’s statement, however, is simply that the notion of people buying ONLY used and growing all one’s own food for personal consumption seems over the top. Yes, I suppose there might be a handful of folks who might do both, but it’s such a remote idea that I don’t find it to be a strong rhetorical point.

  103. Thomas L. Knapp

    RC@119,

    “My critique of CM’s statement, however, is simply that the notion of people buying ONLY used and growing all one’s own food for personal consumption seems over the top. Yes, I suppose there might be a handful of folks who might do both, but it’s such a remote idea that I don’t find it to be a strong rhetorical point.”

    I don’t know that a majority would “buy ONLY used and grow all their food,” but there’s ample historical experience to suggest that a large portion of the populace would find ways to avoid the tax.

    A lot of new stuff would magically become “used” with some false paperwork/legerdemain — and it could sell for full retail price with no tax at 30% off! — and still more would simply be sold off the books completely.

    Personally, I already buy most of my stuff used and am planning an expanded garden this year, “Fair” Tax or not.

  104. Robert Capozzi

    120 tk, yes, you may be an exception. Others probably would shift their behavior in reaction to the imposition of a FAIR Tax.

    Actually, I’m pretty sure CM was making a point about the prebate being a transfer payment.

  105. Robert Capozzi

    more…

    I wonder if Rothbard might have preferred the FAIR Tax to the income tax. If the FAIR Tax is more avoidable and evade-able, as I understood St. Murray’s worldview, that would be the preference. He opposed the flat tax, iirc, because it is in theory less avoidable/evade-able than the current tax system of numerous preferences.

  106. Thomas L. Knapp

    MK@122,

    GMTA ;-)

    RC@123,

    I suspect Rothbard might like the “Fair” Tax for exactly the reason you state.

    As a practical matter, I should be a strong “Fair” Tax supporter. I’d make out like a bandit under it.

    As an anarchist, I also should favor the “Fair” Tax to the extent that it would almost certainly bring the US to complete economic collapse within a year or two, making final political collapse and a revolutionary opportunity much more likely.

    But, I try to take things on their own terms, and the “Fair” Tax is offered as a public policy proposal within a presumably ongoing political and economic schema. On those terms, it makes my short list for the fucking stupidest idea ever.

  107. Hardy

    ?”The FairTax is the most logical tax collection system short of no direct taxes at all because it at least gives citizens a choice of how much tax to pay based on their purchasing habits. If we cannot immediately return to tariffs and excise taxes, the FairTax is the logical first step. As President, if it gets to my desk, I will sign it”. – Ron Paul.

  108. Hardy

    So guy that posted the original quote in @125 pieced together a few different comments from Paul on the FairTax. Paul never said it in one continuous stream of thought.

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