February 17, 2010

Dan Mastromarco's rebuttal to the FLAT tax/Bruce Bartlett in favor of FairTax

Here is Dan Mastromarco's rebuttal to the FLAT tax.

(Paraphrased) REPLY BY DAN R. MASTROMARCO (LL.M., Taxation, Georgetown, principal in the Argus Group, adjunct professor at the University of Maryland, International Management Program, and research consultant to Americans for Fair Taxation - FairTax.org) TO:

"A National Sales Tax Doesn't Add Up" by  Bruce Bartlett, December 29, 1999

Many engaged in true tax reform find Bartlett-type attacks exasperating, if not embarrassing. I'd like to convey perspective of both flat taxers and sales taxers who believe that such attacks are counterproductive, but first provide some political history by which to frame said perspectives.

For years Conservatives have posited that a VAT is bad policy (when liberals were discussing it), fearing it would become additional to an income tax (it was called a "money machine").  Circa 1980, conservative intellectuals touted Hall-Rabushka "subtraction method" [H-R] VAT which taxed business value added at the business side and labor value added at the labor side.  Unlike European VATs (identical in scope), H-R became favorite of Dick Armey and Steve Forbes.  It eliminated steeply progressive tax rates and tax on savings.  Because of the prior VAT criticisms, H-R was packaged as the "flat tax" and is sold as an income tax to this day, rather than the VAT that "its DNA characterizes it as."

Some conservative commentators have called for the repeal of the 16th Amendment and for the adoption of the flat tax, (despite the fact that it is styled as a direct tax and could not be adopted with such repeal).  Mr. Bartlett has called the national sales tax [ie, the FairTax] a VAT (which it isn't), castigated VATs as evil, and has said that sales taxes have become VATs in Europe (which they didn't).  In the next breath, he "throws his arms around" the flat tax (which is a VAT). He quotes Bill Gale that the [FairTax] would have to be imposed at 60 percent, but glaringly fails to recognize that if the two bases are the same, he would have to impose that rate for the flat tax to be revenue neutral. In truth, all economists know that the two plans differ NOT in economic effect or base, but in administration.

An income tax taxes savings and investment multiple times.  Both flat tax and FairTax are neutral as to savings and investment, tax income only once, and are both consumption taxes.  Both are single rate taxes, have nearly the same base, and would improve the U.S. standard of living. Neither redistributes wealth.

While some have even suggested that they are the same plans under different names, the flat tax taxes value added at each stage in the production process, but the FairTax prefers to tax it when it is added up at the end and eliminate the need to make everyone a taxpayer and collector.

Substantive commonalities between the flat tax and FairTax doesn't mean that there are NO key political and policy distinctions that could be exploited in pitting one against the other.  If FairTax supporters wanted to retaliate in response to the Bartlett-type critique, they would have MUCH material with which to HONESTLY do so:

• The flat tax will make small firms and farmers pay the tax even if they have no profit
• The flat tax is opposed by many small business groups
• The flat taxers implicitly support big government by disguising even more of the overall tax burden as the current law
• The flat tax has been kicking around for nearly 20 years
• The flat tax makes everyone a taxpayer and collector, while the FairTax exempts 115 million filers [2000 figure] from ever having to deal with the IRS
• The flat tax is regressive, but the FairTax would enable everyone to keep his full paycheck.
• The flat tax has not only stalled, it has lost public and Congressional support.
• The FairTax is instantly understood, while even some proponents of the flat tax don't understand it
• There are no transition rules developed for the flat tax and they would be very difficult to craft
• The flat tax taxes exports and relieves imports from tax
• The flat tax confuses tax reform with temporary tax reduction and makes both twice as hard
• The flat tax retains the entire income tax apparatus which erodes as quickly as you can say, "tax bill"

FairTaxers could advance these truthful points without resorting to bigotry associated with a cultic religious organization. However, for the most part, FairTax supporters have chosen not to attack the flat tax, but rather accentuate the commonalities between the plans - despite the above-noted differences.  The reason is that, in the battle for tax reform, the real enemy is our current system.

Income tax advocates look down upon the articles of Bruce Bartlett with smug chortling, as Bruce is doing their work for them.  The IRS and the liberals who want an income tax to ensure (1) taxes can be raised without the American people knowing it, and (2) wealth can be redistributed from the middle class to the poor, do not even need to fight us - we're killing ourselves!

Perhaps Mr. Bartlett believes that the flat tax will help elect Republicans, effect tax reform, and provide tax cuts; however, the real effect of his criticism is to divide conservatives, to delay serious national consideration of tax reform, and to fertilize the roots of the income tax.

(Paraphrased from http://snipr.com/mastroflatvsfair  - Addit'l at FairTax.org Whitepaper http://snipr.com/fairvsflat - May republish in whole, or part. -df)

CaFairTax-B. Spillane~Dick Armey,FairTax was a Tea Party issue long before the Tea Party got it's name.

Mr. Mintz, Tea Party Leader,

Allow me to offer you the benefit of my years of "working" with Congress to achieve worthwhile economic progress; you aren't going to like it, just as I don't like it, but, sadly, it's true.

MOST of Congress, including the Republicans, (not all) are lying to you; you probably weren't "born yesterday", but we are dealing with expert liars here and it seems to take years to finally figure it out. (just like the Madoff "exposure" took years)

Almost all (but not all) Congresspeople have the same "religion" - it's re-election!

To get re-elected, they need votes, obviously, but how do they get the votes. One way is direct contact with their constituents and personal persuasion in those contacts (very honorable).

However, the other way is by advertising which is expensive. The way they get the contributions in order to advertise is where the rub, and the corruption, comes in. Of course, it's honorable, if obnoxious, to get the contributions by asking; they do plenty of that.

Merely asking for money gets peanuts compared to the "way it really works" and that is the ol' "quid pro quo" (this for that).

That's where the government goes off the rails in two ways.

Off the rails method #1, is spending to get votes, either through earmarks or entitlements. The Dems are legendary at this, but plenty of Repubs don't want to get left behind (the medicare drug benefit is one example).

Method #2 is pernicious, as well, and that is by manipulating the tax code. This way is just as harmful as the spending method, but it's easier to hide and to lie about.

Allow me to give you an insight into what I'm talking about. Recently, I had the pleasure of meeting Rep. Mike Pence (R-IN), the third ranking Repub. in the House.

I thanked him for being a co-sponsor of the "FairTax" bill (HR 25) in the House. At that, he put his hand on my shoulder, and said, "Bill, do you have any idea of how many people in this town make their living off the tax code?" (We were in Beverly Hills at the time, but it was obvious that he meant in Washington)

I replied, "Yes, we know that 50% of all the lobbyists in Washington are lobbying the tax code." (for quid pro quo favors)

At that, he put both of his hands at waist level, thumbs up, and jerked his thumbs toward the ceiling. In other, unspoken words, "up, up, your estimate."

At that, I smiled and relented by saying, "OK, more than 50% are lobbying the tax code."

He then, again, put his thumbs vertical, his eyes opened wider, and he abruptly jerked his thumbs toward the ceiling, but higher and more dramatically! (maybe he thought I might be wearing a 'wire' and didn't want to be caught saying this). He clearly was trying to get my attention and that "more than 50%" wasn't nearly enough.

I then, relented, smiled and said, "OK, MOST of Washington is lobbying the tax code!" He nodded and then turned to someone else who was waiting to talk to him.

His words and gestures indicated two bad realities. One is that, with all that lobbying effort to manipulate the tax code, the money involved is staggering and we are fighting Goliath. (other friends of mine who are former Congessmen told me the same)

The other reality which follows the first is a sarcastic, "good luck" with your project!

"Manipulating" the tax code means changing a word here or a date there or a paragraph or definition or exemption.

Harmless? Not if you are the beneficiary (usually companies, industries, or other 'special interests') and not if you are the American public who must make up the lost "revenue".

That's how the tax code got to be about 70,000 pages and why even the head of the IRS needs to get professional help (his words) in filling out his taxes!

Worst of all, it's why the professional re-election Congrsspeople won't get rid of what is so harmful about our code which is substantially contributing to our outsourcing of jobs and businesses.

We will never outgrow the fiscal mess we are in until we have a growth strategy and Dems and Repubs keep that from happening so they can "milk" the harmful tax code to get campaign contributions. And THEY KNOW IT!

Now to the Tea Parties and Armey, et al.

Recently, the "Tea Party Patriots", which, I believe, is an eastern U.S. group, sent out a voter poll to see what Tea Party people saw as most important issues. The poll showed that, by far, the #1 issue is enactment of the FairTax. Other issues at second and third places, etc. were half of what the FairTax received. The "flat tax" was off the bottom of the chart and hardly even acknowledged.

Now, the TPP is getting "help" from Armey's bunch and perhaps other Repub groups in Washington. Keep in mind, please, Armey and Gingrich and others don't want the FairTax because it eliminates all the money grovelling for campaign contributions using the tax code. They say that they want the "flat(income)tax"  because, while better than what we have, it will be easy to manipulate and get back to where we are now.

So, when Armey's bunch, only helping you see, "analyzed" and condensed the Tea Party Patriot's poll, guess what? They conflated "tax reform" to both the flat tax and FairTax. So, they pulled their baby from the dead to equal to the #1 chosen issue.

No, I don't "believe everything I read", but, believe me, I've been in the mouth of the whale and it ain't pretty.

Armey, et al, is drooling at the possibility of taking over; "come on in, said the spider to the fly!"

Don't let it happen to yourself and the many patriots of the Tea Party.

The FairTax was a Tea Party issue long before the Tea Party got it's name. We haven't collected a lot of liars about us because we are harmless to the venal hordes. If you fall for their lies, you, and the USA are the victims.

I'll be happy to tell you in detail why the FairTax is one issue that answers the criticsm of Tea Party haters who say that the Tea Party people only know what they are against. It's really simple in principle.

Good luck,
Bill Spillane
CA State Director
Member, Board of Directors
Americans For Fair Taxation (AFFT)
Manhattan Beach, CA 90266
Subject: Re: "The Tea Parties Are No Great Awakening" by Thos. Frank, WSJ
> To: "bill spillane" <billspillane@yahoo.com>
> Date: Wednesday, February 17, 2010, 6:36 AM
> Don't believe everything you read in
> the Newspaper.
> Armey is only cursorily involved with the tea parties-
> I think I have talked to his staff maybe 5 or 6 times
> (haven't in over a month) and they generally offer
> little if any support. We got some bumperstickers from them
> at one point...that's about all I can remember
> materially.
> His involvement with Hoffman in NY-23 was a
> disaster.
> Nathan
> On Wed, Feb 17, 2010 at 1:13 AM,
> bill spillane <billspillane@yahoo.com>
> wrote:
> Frank is a left wing
> polemicist (token leftist at WSJ), but he's on to
> something about the Tea Parties falling into the hands of
> Dick Armey.
> Is that what you want?
> Bill Spillane
> (310)939-9895
> http://online.wsj.com/article/SB10001424052748704804204575069780393147278.html?mod=WSJ_Opinion_BelowLEFTSecond#

Roger Buchholtz~MiFairTax on used items & why not property tax included

MifairTax Taxation of used items:
 There will be absolutely no tax on used services... (that is a joke).  The only taxation of used items mandated in the proposed MI constitutional amendment is on the increased sale price of a used home.  The difference between the previous sale price and the current sale price is taxed after allowing for 2% per year inflation, and after the subtraction of improvements to the home between the sales that had been taxed when made.  There has been some discussion of charging the sales tax on used items that require a license (cars, boats, snowmobiles, motorcycles, RVs, etc.) but this is not in the MI FairTax constitutional amendment.  If it is to be included it would be so via implementing legislation, which would be strongly opposed by most MI FairTax leaders.  I have attached the actual petition so you can see the actual language.  The effective dates in the amendment have not been updated.

Why Property Taxes are Not Now a Part of the MI FairTax






To include property tax relief in the MI FairTax currently would cause the sales tax rate to be too high relative to other states.  To create jobs we must reform our tax system to make Michigan the best place to locate a business.  For that reason we must first address those taxes that increase the cost of Michigan made products the most.  Property taxes have only a minor impact on the cost of producing products in Michigan.  In addition, they are visible and the citizens have the direct ability to lower these taxes at the ballot box.



The primary objectives of the MI FairTax are "Truth in Taxation and Job Creation".  The truth is delivered by a 100% visible sales tax that is clearly visible on every sales receipt; and jobs are created when Michigan workers and businesses can better compete in the global market without large hidden taxes being imbedded in the prices of the goods and services produced in Michigan.


As former Chairman of the President's Council of Economic Advisors, Dr Alan Greenspan, lectured Congress: "Businesses do not pay taxes, only people pay taxes."  Businesses treat taxes like any other cost, they pass them on to consumers in higher prices for their products.  Michigan's high level of business taxes places us 49th in favorable business tax environment.  These high taxes are imbedded in the prices of all goods and services produced in Michigan and place Michigan workers and businesses at a large competitive disadvantage.  The result is that our companies and jobs are leaving our state and our families are leaving Michigan for employment elsewhere.  Because people are leaving our state rather than moving in, the demand for housing decreases and with the decreased demand comes decreased property values.  This may result in lower assessments and lower property taxes, but it is hardly an acceptable means of achieving this goal.  If our economy was growing and people had good paying jobs our property taxes, even at current levels, would not be so burdensome.  There is no greater economic stimulant than the complete elimination of "business" taxes.  This would give Michigan the most attractive business tax environment in the country, and companies from across America and the world would move here immediately.



Property taxes are high because local units of government spend at levels that require high taxes.  These taxes are not hidden. They are very visible, as we all receive tax bills or see them included on our mortgage statements and rent payments.  Because property taxes are visible and people have the right to vote, citizens have the power to directly control these taxes at the ballot box.  Local property taxes are usually not a large part of the total cost to produce a product, whereas, business taxes, like the MBT, and the associated tax compliance cost are typically a very significant part of product cost.  To create jobs we need to eliminate the taxes that are most responsible for increasing the cost of producing products in Michigan.


In addition, if property taxes were to be replaced by a sales tax/MI FairTax it would cause the MI FairTax rate to be too high relative to the sales taxes of other states and would hurt Michigan businesses and workers.  This could be reconsidered when other states also adopt a higher sales tax as an alternative to their current tax system, and this would be likely because they will have to do adopt a state FairTax or risk losing their businesses to Michigan


Because Michigan businesses will no longer be taxed in Michigan they will be able to sell their goods and services for less, and be able to compete with businesses in other states.  When the MI FairTax is added to the new lower cost the final after tax cost will be comparable to what it is today.  The MI FairTax rate is set to bring in the same amount of revenue to the government as the taxes it replaces, so our true tax burden will be about the same as it is today.  The difference is that we will see our true tax burden for the first time in generations, as it will be shown on every retail sales receipt.  Once citizens can see their true tax burden they are then able to address their desired level of taxation.  This is the natural restraint on the level of taxation that was intended by our Founding Fathers.


Roger Buchholtz

MI FairTax President (volunteer)
P.O. Box 141 / 5620 Clato St.
Kalamazoo, MI  49004
phone/fax:  (269) 345-0950
cell:  (586) 530-3298


Operation FairTax Victory~Storm the Hill, DC Rally 4/15/10 Update


Replace All Federal Taxes on Income with the FairTax Act of 2009, HR 25/ S 296

A message to all members of FairTax Nation

Storm the Hill – Operation FairTax Victory

Washington, DC – April 14-16, 2010


Dear FairTax Nation citizens...


We are rolling right along with plans for Operation FairTax Victory!


As you have already heard, the event begins on April 14th with a "Meet and Greet" and we "Storm the Hill" on tax day, April 15th.


But, up until now, you've heard very little about the conference scheduled for Friday, April 16th. We are happy to be able
to provide some details about the conference at this time....


Scheduled Speakers: Mr. Terry Stockham, COO of Americans For Fair Taxation; Mr. Leo Linbeck, Chairman, Americans For Fair Taxation (via live
feed); Dr. Laurence Kotlikoff, professor of economics, Boston University
(instrumental in the development of the FairTax), "Economics of the FairTax" (not confirmed); Pastor David Whitney,
Institute On The Constitution, constitutional scholar, "Constitutional Fair Taxation" and Clyde Prestowitz, author, "Three Billion New Capitalists...".


Workshops/Seminars: "Social Networking Online" & "Legislative
presented by the Leadership Institute; "Grass Routes" presented by Grass Roots Freedom Riders – help plan
the route for the Grass Roots Freedom Ride for FairTax  and a video/discussion on the book "So Damn Much Money" by Robert Kaiser, led
by Phil Hinson, Eastern Regional Director.


We sincerely hope you will join us in DC for all three days of Operation FairTax Victory. Registration for the conference is a mere $45 and we
have contracted with the Hyatt
Regency Crystal
City hotel for some
really good rates. Please visit the FairTax Nation home page or FairTax.org to
register for the conference or to book your hotel room. If you can't attend,
please consider making a small contribution towards helping us meet our
expenses at www.fairtaxnation.com.

By the way, Neal Boortz will be making a major announcement about the FairTax during his program tomorrow morning - you may want to listen in if you can.


Thank you,

Sean Fagan

Special Projects

Visit FairTax Nation at: http://www.fairtaxnation.com/?xg_source=msg_mes_network

To control which emails you receive on FairTax Nation, click here

As you have already heard, the event begins on April 14th with a "Meet and Greet" and we "Storm the Hill" on tax day, April 15th.