Tuesday, July 17, 2007

Why the Fair Tax Proposal will Never Pass

While I was in Chicago I noticed something really interesting. Hotels that cater to business travelers charge a lot. Breakfasts in the hotel restaurant range from $12 to $21. To use the hotel’s swimming pool and fitness facility the charge is $12 per day. To access the Internet they charge $10 per day. Contrast this with hotels that rely on tourists rather than business travelers. The meals at the restaurants are cheaper; the Internet access and fitness facilities are free.

When I stood outside the fitness facility at the Chicago hotel, I was wondering, “Who would pay $12 per day to use this.” Then it dawned on me. The Federal Government is subsidizing this fitness facility and the expensive meals and the charge for Internet access. Business travelers either get all their travel expenses reimbursed by their employer or, if self-employed, they can deduct their expenses from their federal income taxes. The employer, in turn, also treats these meals and fitness facility and Internet charges as business expenses. The result—the Federal Government is paying part of the increased charges that the business hotel is making.

If the Fair Tax proposal were to pass, there would be no Federal income tax. Therefore, the expensive meals, fitness facility fees and Internet charges would not be deductible business expenses. Now business travelers would have to pay for these expenses from their own pockets. Further, under the Fair Tax proposal, all these expenses would be subject to the Federal sales tax. Suddenly, business travelers would think twice before incurring these expenses. They might start shopping around for hotels where the meals are reasonably priced and where the fitness facilities and Internet access are free.

You can bet that the Sheratons and Hiltons and Hyatts and other hotel chains that cater to business travelers are not going to give up these money makers without a fight. They will realize that the Fair Tax proposal will not be good for their business and they will lobby against the Fair Tax.

There are many other sectors of the economy in these United States that also rely on the federal tax subsidy for part of their income. They will also oppose the Fair Tax. Just think of the housing industry. Without the tax exemption for home owners, people will not be able to afford such expensive houses. Used houses will have a strong competitive advantage over new houses because they would not be subject to the federal sales tax. Land developers and builders will therefore oppose the plan.

And, of course, the elimination of the federal income tax deduction will be disastrous for charitable institutions. I could be generous and assume that people contribute to charities for religious or other reasons and that the tax deduction is not an incentive. However, let’s face it. If people were so altruistic, why did we need the deduction in the first place?

I must concluded that even if the Fair Tax proposal was fair, which I’m not convinced it is, it would adversely affect so many interests in this country that it will never become law.


Kristen said...

Did it ever occur to you that WE are paying for those so called "exemptions"..not the Federal Government? Don't you know where the Feds get their money, and so generously give it back to you on April 15th, in those Tax Returns...money we ALREADY paid? The FairTax will allow people to have more purchasing power upwards of 40 something %, which only means people will be spending more money. Econ 101.

Mark said...

The Fairtax will never pass cause its utter nonsense. Because IF it passed, whoever voted for that nonsense would be out on their ear next election.

Congress does a lot of stupid things, I agree. And our tax code is a horrible mess, which punishes work and earned income. Its written largely by lobbyist who seek to give the tax burden to someone else - usually workers.

But if this fair tax passed, you would enrage the elderly and the sick.

Another major fallacy — Fairtax pretends it will be able to tax health care. Fairtax looks to tax the 2 trillion dollar health care industry — to the tune of 460 Billion.

If Fair tax CAN NOT tax health care for political reasons — they lose 460 Billion more in revenue, and the tax rate has to go up to 50-55% percent.

Lets see if the Fairtax can really tax health care and get 460 billion from these people.

Will Fairtax get away with taxing health care?

Depends. Depends what a cancer patients does when just ONE patient gets a tax bill of 40,000 dollars on their surgery, chemo, and hospital bill. Will they go ahead an pay it?

Or scream like bloody murder?

Keep in mind, there are 15 million people dealing with cancer at any one time.

Even if they cancer victims have insurance — insurance doesnt cover this extra 35% tax. So if you survive cancer and your insurance pays the doctor and hosptial 100K, you still owe the 35,000 for the tax.

The Fairtax would be the new -- and absurdly high -- co-pay.

What do you think nursing home patient will say, or the famlies, they see a 25,000 tax, per year, on their nursing home care?

Will they just pay it? Or scream like bloody murder?

What would the parents of an 8 year old leukemia victim say, when they see a “sales tax” bill of 70,000 dollars, on their effort to keep their child alive. Suppose further that the parents only make 35,000 a year.

Will they just pay it -- using magic -- or will they phone their congressmen? Their Senator?

What will millions of people say when they see their bills — second opinions are taxed — lab tests — taxed — ER visits — taxed. Dental care -taxed. Doctor visits — taxed. Knee replacement — taxed. Child birth — taxed.

The outcry from these folks will be like nothing US history has ever seen before.

Congress would quickly exempt health care expenses from a high sales tax.

If any Congressman dared to suggest the parents of a cancer victim should pay a sales tax — they wont be a congressmen very long.

So the rate would have to be adjusted up — to 55-65%

My point is — you wont be ABLE to tax health care. And you CAN'T tax the federal government.

The Fairtax budget would be 800 billion dollars shy --

And we havent even discussed other huge markets which will demand exemptions. Renters -- Car sales, new home sales -- new moblie homes.

Of the 40 million renters in the USA - I bet not 12 individual renters know their taxes would skyrocket the moment this bill is passed. And wow, will they have a few words.

ALready, you have nearly a trillion dollar shortfall!!

Fair tax can’t work. And Im really sorry that it can't.

Anonymous said...

The fair tax With the prebate program in effect, those earning less than $15,000 per year would see their share of the federal tax burden drop from -0.7 percent to -6.3 percent. Of course, if the poorest Americans are paying less under the FairTax plan, then someone else pays more. As it turns out, according to the Treasury Department, “someone else” is everybody earning between $15,000 and $200,000 per year. The fair tax only benefits those who pay more than 23% per year in taxes the wealthiest Americans. And if you want to calcualte how much its going to cost use an effective tax rate analsysis please

Curious Couture said...

This is possibly the most ignorant post ever written. If the author would actually READ the fairtax bill he would realize that the insurance premiums themselves are taxed, not the service itself. Once the premiums are taxed, there is no need to tax services received. This is spelled out very clearly in the bill. It is an insult to write that a single person would be responsible for a 35,000 sales tax on one transaction.

Anonymous said...

I employ 15 people, pay them well, give them bonuses, pay 100% of their health insurance premiums (because I want to), and contribute over $100,000 annually to local charities. My tax bill is $286,000.00 for 2011. That means that my taxes and giving each year is more than my take-home pay. Why is it that because I do well, I "owe" the government more? I'm receiving NO more services from the government than the slouch collecting 99 weeks of unemployment. I'm all for the fair tax, because I'm tired of supporting illegals, lazy people, and government parasites!! You say that the Fair Tax is only good for the people paying high taxes. That's true, but we're the ones supporting everyone else!!