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LETTER: 'Fair Tax' not all it's advertised to be

Thursday, June 11, 2009 | 8:35 a.m. CDT; updated 4:22 p.m. CDT, Saturday, June 13, 2009

Saturday there will be a “Fair Tax” rally at the Boone County Fairgrounds. This is being billed as the first "fair tax" rally west of the Mississippi and is designed to build support for replacing the corporate and individual income tax with a sales tax. While the federal fair tax legislation (HR 25) is not likely to become law, supporters see Missouri as possibly being the first state to enact a fair tax.

In Missouri’s 2009 legislative session, HJR 36 passed the House but failed in the Senate. This legislation would make our already regressive tax system even more regressive with more low- and middle-income Missourians paying more as a share of their income in taxes than do the wealthy. Under the “Fair Tax,” the only Missourians who wouldn’t pay higher taxes are the wealthiest 5 percent. Anyone in the top 5 percent of the income distribution will see a tax cut on average under HJR 36, and those with an average income of more than $1 million will get an average tax cut of $22,864. The tax would apply to everything you buy (food, rent, prescriptions drugs, property) and to all services (doctor’s visits, babysitting services, nursing home services).

Proponents of the fair tax legislation say the state’s new sales tax rate would be 5.11 percent to ensure revenue neutrality, but the Institute on Taxation and Economic Policy found the new average state and local sales tax rate would actually need to be 12.5 percent to ensure Missouri still collected the same amount of tax revenue.

Eliminating the income tax doesn’t guarantee economic prosperity. Two states with no income tax face serious fiscal deficits. Tennessee’s budget shortfall for 2010 is 9 percent of the general fund budget, $856 million, and Washington State has one has one of the largest projected budget shortfalls in the country, more than $3 billion or 18.5 percent of its general fund budget. In difficult economic times, sales taxes become an unreliable source of funding, and Missouri’s border states would likely see an increase in sales as shoppers try and avoid the higher sales tax.

As with most things in life, tax fairness and equity is based on balanced revenue sources. It’s ideal for states to have a mix of sales, property and income taxes. Before you jump on the bandwagon for “fair” taxes, I urge you to look at the analysis that has been done on tax policy.

 

 

 

 


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Comments

Allan Sharrock June 11, 2009 | 9:36 a.m.

HUmm seems to me that if revenues fall then we should cut spending. I think I heard of a term called pay as you go used just recently. I mean if I make less money I should spend less money. The fair tax will allow those of us who want to save money to save more and that allows banks to lend more. Anything is better than the IRS. Worse case scenario is that we go back to the old way.

(Report Comment)
King Diamond June 11, 2009 | 9:53 a.m.

I'm a fan of fair tax, but it does suck having our two largest metropolitan areas sharing a border with Kansas and Illinois. People aren't going to travel a few miles to save 20 cents on a box of toothpaste, but if they are planning on making any large purchases like a tv or anything of that ilk you can bet they will be driving 20 miles to save a hundred bucks.

(Report Comment)
Allan Sharrock June 11, 2009 | 11:19 a.m.

Well the other border states already have higher sales taxes. So they won't be saving that much if any. I think as gas goes up and peoples time becomes more valuable they will be willing to travel less. I mean I know if I travel to Boonville I can probably save money on carpet but the truth is that I would rather save the drive time and spend my money here. Plus a lot of people won't want to risk the drive to another state to try and find what they are looking for. I mean I could drive 20 miles in the hope to save some money but in the end they may not have what I want. Or lets say I bought the product then what happens if it breaks. Now I have to drive back to return it. Assuming it wasn't bought from a chain that we have locally.

(Report Comment)
Colin Malaker June 16, 2009 | 8:23 a.m.

Thorough economic analysis debunks the ITEP paper often quoted in campaigns when a
national retail sales tax is mentioned. According to sophisticated research by Dr. Laurence
Kotlikoff (http://people.bu.edu/kotlikof/), noted public finance economist of Boston
University, the FairTax national retail sales tax at a rate of 23 percent significantly reduces
marginal taxes on work and saving, substantially lowers overall average lifetime burdens
on current and future workers at all income levels, and enhances overall progressivity.
----------------------------------
1 “The Effects of Replacing Most Federal Taxes with a National Sales Tax: A State-by-State Distributional
Analysis,” Institute on Taxation and Economic Policy (ITEP), Citizens for Tax Justice, September 2004.
2 Condensed version of Kotlikoff, Laurence J. and David Rapson, “Comparing Average and Marginal Tax Rates
under the FairTax and the Current System of Federal Taxation,” October, 2006.
3 Average remaining lifetime tax rates are based on the total tax payments net of Social Security benefits that the
household will pay in its remaining years of life. They measure the household’s future tax burden under the FairTax
compared to what it would have to pay if the current tax system remains in place.

(Report Comment)
Bob Burt June 18, 2009 | 12:36 p.m.

One of the greatest benefits of the Fair Tax is that removing business taxes and the cost of conforming with them will result in lower retail prices. The universal law of competition will bring them down. You may find consumers traveling to the Fair Tax states to save on their purchases.

(Report Comment)
Robert Barr Jr. September 26, 2009 | 12:57 p.m.

I have paid property taxes for 28 years which is a rip off.Now that I have my house on the market or anybody else to pay a 7 percent or 12 percent tax whether I have a loss or not is total Communism.I will do WHAT EVER IT TAKES TO MAKE CERTAIN THIS COMMUNISTIC LAW DOES NOT GO THROUGH.

(Report Comment)
Robert Barr Jr. September 26, 2009 | 1:00 p.m.

I have paid property taxes for 28 years which is a rip off.Now that I have my house on the market or anybody else to pay a 7 percent or 12 percent tax whether I have a loss or not is total Communism.I will do WHAT EVER IT TAKES TO MAKE CERTAIN THIS COMMUNISTIC LAW DOES NOT GO THROUGH.do YOU PEOPLE NOT realize if the home industry is not depressed already this could destroy the buying and selling of homes completely if this insane law goes through.

(Report Comment)
Allan Sharrock September 26, 2009 | 3:36 p.m.

7% on a 150K house is $10500. Taxes on that same house would be around $1400yr. So time value of money you would save in the long run. The buyer pays the taxes so it wouldn't cost you a dime until the next house you buy. I have already shown that you would save with the fair tax. So chill out.

(Report Comment)

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