More on Fair Tax

[Frank Solle]

This article ran in yesterday's T.C. Record Eagle


Forum: MI Fair Tax moves toward ballot
By Roger W. Buchholtz

Months of economic research to determine the tax rate necessary to fund state government has been completed by top Michigan economists, ballot petition language has been approved by the Board of Canvassers and the circulation of petitions to place the Michigan FairTax proposal on November's ballot has begun.

If the proposal is passed by the people in November, the MI FairTax will go into effect Jan. 1, 2010, and Michigan citizens and businesses will no longer have to contend with:

-- Personal income tax
-- Michigan Business Tax and current Insurance Proceeds Tax
-- Property tax on business equipment
-- State six-mill Education Tax on business real estate
-- Sales tax on business purchases

Michigan citizens will keep 4.35 cents per dollar of their income and pay 3.75 cents more in sales tax as the rate is raised to 9.75 percent. There will be no more Michigan income tax returns and everyone will know exactly what they are paying in taxes as it will be shown on every retail sales receipt.

The poor are protected and the tax is made graduated by a monthly "prebate" that "untaxes" expenditures up to the poverty level for all households by payments in the amount of what the sales tax would be and reduces the effective tax rate of all Michigan residents.

While everyone pays the same tax rate of 9.75 percent at the cash register, the "prebate" results in an effective tax rate that increases as spending increases. Because of the prebate, a family of four spending $21,200 per year will have a 0 percent effective rate, and if the family spent $48,451 (median Michigan household income), it will have a 5.5 percent effective tax rate. There are no loopholes and the need for them is eliminated because the prebate untaxes necessities.

The MI FairTax will bring "Truth in Taxation and Job Creation" to Michigan. Taxing businesses is a deceptive way of taxing citizens. The MI FairTax stops the deception of hiding Michigan "business" taxes in prices of Michigan-produced products that today inflates costs and results in the exportation of our companies and jobs rather than our products.

By eliminating the ruse of "business" taxes, people will see on every sales receipt their true tax burden for the first time in generations. This visibility of taxes is the self-limiting factor on taxation and government intended by our Founding Fathers.

Most economists agree that income taxes depress the economy and sales taxes grow the economy. It's not rocket science. When you tax productive behavior you get less of it.

The MI FairTax is so simple that some fear the public will understand it. It is so visible that some fear the public will learn their true tax burden. It taxes us so directly that it eliminates the ability to buy and sell tax favors, so some that benefit from this practice hate it.

The economic research, effective tax rate charts, constitutional language, how to obtain petitions, etc. can be viewed at: www.mifairtax.org.

About the author: Roger W. Buchholtz, director of the Michigan FairTax Association, is owner and operator of a property development and property management company in Detroit and co-owner and president of an international trading company. He has been active in local, state and national politics and has served in local elected office. He is the volunteer director of the 20,000-member Michigan FairTax Association. He was a captain in the U.S. Army.

[AEW]

I have followed the Fair Tax debate for a many years now. At first I was very skeptical. As I learned more I came to understand that this is a revolutionary idea that should be put into effect immediatly. The book by Congressman John Linder is a short simple read for those who wish to learn more about the fairtax. The fair tax has been poorly reported in many national media outlets and grossly misrepresented. Imagine a tax system where everyone pays, (no underground economy) and no one would ever be audited or go to jail or loose their land or homes for failure to pay state taxes. And the best thing is that we the tax payers have a daily reminder of how much of our hard work goes to state government. Hopefully, we will all begin to DEMAND fiscal responsibility from both sides of the political isle. Please read up on the Fair Tax, If you have an open mind and you will cleary see that this is a great idea! Just what Michigan needs!!!!!!

[Chamber of Commerce]

Thanks for bringing this to our attention Frank. We need to learn more about this proposal.

[TjD]

The one problem I see right off with the "Fair" tax is that will in effect punish people who have saved money over time. They have already paid tax on their money in their savings & investments, now they'll have to pay again when they spend it. It is double taxation. This seems particularly unfair to seniors who have paid taxes their whole life and built up a nest egg as well as younger people who have been fiscally responsible & saved instead of spending/borrowing. For instance if someone saved to remodel their house & the fair tax passes they will have to pay the "fair" tax for all the services of the plumber/electrician/carpenters etc. on top of the taxes they paid when they made that money; where as the person who borrowed money & already remodeled didn't pay taxes on services and now will not pay income tax on the money they make to pay off the loan. How is that fair? This system in effect will punish those who have been fiscally responsible. Which is something we need more of in this country.

The fair tax may also removes much of the incentives to purchase municipal bonds which fund our community improvements like the remodeling of the local school, with out the tax free incentive of these bonds they will have to pay greater interest rates to get investor to buy these bonds. Local governments will have to pass higher property taxes to cover the higher interest payments.

[dougbo]

"Fair" is a disingenuous marketing term, of course. There are some articles on the purported pros:

http://en.wikipedia.org/wiki/Consumption_tax (nb: seems a little too uncritical; my guess is that it was written by proponents)

and cons:

http://www.robertreich.org/reich/20050309.asp
http://www.mises.org/story/1768 (nb: clinton labor secretary and libertarian stalwarts are the authors)

of consumption taxes. The big challenges are the inherently regressive nature (compensated for to some extent, in this case, by the "prebate") and the unknown effect it would have on state revenues. Also, it's not been demonstrated, to my knowledge, to increase the savings rate, only theorized to have that effect. Does anyone have information to the contrary?

I think study of how it's working out in practice, where it's been implemented well would be very informative. Unfortunately, the most prominent examples I could find were Niue and Tonga... which aren't necessarily comparable to Michigan

http://archives.pireport.org/archive/20 ... -27-rp.htm
http://asiatax.wordpress.com/2007/11/29 ... -tax-bill/
http://www.rnzi.com/pages/news.php?op=read&id=36793

Changing the tax system will be disadvantageous to some groups, more or less by definition. In a country where people refinance their homes in order to pay for vacations, it's not clear that our tax structure is the biggest impediment to savings.

Doug

The one problem I see right off with the "Fair" tax is that will in effect punish people who have saved money over time. They have already paid tax on their money in their savings & investments, now they'll have to pay again when they spend it. It is double taxation. This seems particularly unfair to seniors who have paid taxes their whole life and built up a nest egg as well as younger people who have been fiscally responsible & saved instead of spending/borrowing. For instance if someone saved to remodel their house & the fair tax passes they will have to pay the "fair" tax for all the services of the plumber/electrician/carpenters etc. on top of the taxes they paid when they made that money; where as the person who borrowed money & already remodeled didn't pay taxes on services and now will not pay income tax on the money they make to pay off the loan. How is that fair? This system in effect will punish those who have been fiscally responsible. Which is something we need more of in this country.

The fair tax may also removes much of the incentives to purchase municipal bonds which fund our community improvements like the remodeling of the local school, with out the tax free incentive of these bonds they will have to pay greater interest rates to get investor to buy these bonds. Local governments will have to pass higher property taxes to cover the higher interest payments.

[Kirk Beyer]

Fair Tax, Income Tax, Business Tax, Property Tax, the problem is not the method of taxation. The problem is an ever expanding Gov't that demands more of our money every year. If you think you will pay less with the "Fair Tax" I'm afraid you are mistaken. The fair tax is planing on raising just as much money as the other taxes do now. If the people in Lansing can not raise the money they feel they need they will change the rules or rates so that they reach their goal. You just have to look at the SBT to MBT to see that. Smaller gov't and less entitlements = the need for less taxes, what ever name they want to give them.

Kirk

[Gillespie]

Let's give Kirk and "Amen Brother" for that reply!! I believe the fair tax is the right way to go but we also need less government "helping" us along the way!!!