Andrew replied to another of my comments on his blog with another blog entry HERE

While I agree with Andrew that no tax system will remove all uncertainties and all opportunities to game the system, I believe that the FairTax does a better job than the existing system and the Flat Tax.

Andrew tosses out a scenario with a DVD rental service and indicates that it would be uncertain whether used DVD’s would create a grey area that DVD rental businesses would have uncertainties with. Now I fully appreciate that DVD rental businesses may rent a DVD only once (and charge the FairTax on the rental) & then treat it as used with an ability to sell with no FairTax… I can also appreciate that overstocked DVDs that were intended to be rented but that were never actually rented might provide some uncertainty.  Chalk this particular scenario as more certain under a Flat Tax.

But I believe that most scenarios are much more certain under the FairTax. Take Walmart… 23 cents on the dollar goes to the tax period. Take your pool maintenance service… Add all service sales and subtract any refunds provided & 23 cents on the dollar goes to the tax. Take your restaurants… Gross receipts less refunds * .23 go to the tax. Your $1,000 removal of that mole that has been bothering you for years… $230 goes to the tax.

Okay, if you have a shop that sells new and used items, they will have to track sales differently but, heck, cash registers have been doing this for years (taxable and untaxable items). Rocket science? No. Potential for dishonesty? Yes. But if I were setting up the tax enforcement/auditing side of things I might put more focus on businesses that report sale of a significant volume of used goods just to let them know that the random audits will be keeping them under the microscope just a little more than businesses that don’t offer both. 

Andrews also believes that because the FairTax is calculated on billions of transactions that it would be more troublesome. The truth is that income-based taxes involve billions of transactions on both sides of the ledger and and every step of channel (manufacturing/import, distribution, etc.) in order to product a profit/loss (i.e. income). It is more complex to calculate income than it is to calculate a tax based on sales (even if you have to differentiate between new and used goods).  Another good point here is that the FairTax only applies to business-to-consumer (b2c) vs. b2b. Of the roughly 30 million businesses, many are b2b - distribution and/or business services (legal, marketing, etc.) - that support the b2b. If ~10 million are b2b, that is 10 million (monthly?) sales tax filings as opposed to 300 million annual income tax filings + 30 million corporate tax filings. Where do you think most uncertainty will exist?

Andrew claims that there will be chaos because no one will audit b2c businesses? I do wish he would debate fairly… I took time to communicate that my state of California would be funded on the order of $3.86b  through tax receipts to administer/audit the FairTax (in addition to what the state already has to admin/audit its current sales tax).  

Andrew claims that he wants folks to be fully informed about many options before deciding. Normally, I would agree. But we are not battling We The People here. We are battling politicians who are taking our country down a populist path for their own interest and for the interest of the lobbyists who keep them elected. Many options confuse the masses. A core idea needs to be rallied around. I maintain that the core idea should be the FairTax. 

Why the FairTax over the FlatTax? I have posted key reasons but don’t know how to do a trackback yet. Key reasons are as follows:

1.       The FairTax reverses the trend of jobs, capital, and opportunity being chased away from our lands from income-based taxation.

2.       The FairTax makes our nation more competitive (both at home and abroad).

3.       The FairTax spreads the tax burden to all who consume within our lands (including those operating in the shadows).

4.       The FairTax has us contributing to gov’t only after we pay for basic essentials of life through the tax prebate provision.

5.       The FairTax allows younger workers to choose to gain financial security ahead of contributing more to the gov’t vs. requiring younger workers to pay as they earn on the income side.

Finally (and Andrew, you might not appreciate this) I do encourage folks to read the book or at least scan through http://en.wikipedia.org/wiki/Fairtax to get more of a sense of it. Information is power.

Cheers,

YK