Fair Tax Misrepresentations

Joe Lolli submits these comments in italics to a TFL letter by Mark Curran:

The Fair tax wouldn’t eliminate incentives to own homes, here is why.
A person wanting to save up enough to make a down payment on a home would no longer have to pay federal income or FICA taxes on the money used for their down payment. For example, someone in the 25% tax bracket also pays FICA (7.65%) so the FairTax would return to that wage earner (25+7.6) almost 33% or 1/3 of their paycheck. Under current code, this homebuyer would first have to earn 150% of the after-tax dollars needed for a down payment. Under current tax law, if the wage earner needs to buy a $3 gallon of milk, she must first earn $4.50 in order to net enough to pay for it. If she wants to buy a $5 lunch at a fast food joint, she would have to first earn $7.50. With the FairTax, she would only have to earn the actual amount needed.

I actually hope the FT passes.
Just imagine what a new $200,000 home would cost if there were no embedded taxes factored into the cost of building that new home.
Imagine if the builder, all of the sub-contractors, the developer, the architect, engineer, real estate broker and appraiser no longer had to pay taxes on their profits. Or if the material suppliers selling the lumber, the concrete, the plumbing, the roofing, the wiring, the appliances didn’t have to pay taxes on the profits that they made in their “B-to-B” dealings with the homebuilder. Once all these embedded costs are removed, that $200,000 home would suddenly cost around $156,000… including the profit made by all those that contributed to that home’s construction. Now add back the 23% FairTax and the final price is suddenly back to around $200,000.
Also consider that a home purchase typically requires a 20% down payment. That same taxpayer in the 25% tax bracket would first have to earn almost $60,000 in order to save a $40,000 down payment for that $200,000 home. With the FairTax, that down payment requires only $40,000 of earnings.
Since the lender’s investment in that mortgage security is no longer subject to taxes, mortgage interest rates would fall down to around that of municipal bonds which are currently tax free. With the reduced interest rate and adding back the FT, the effective net cost of the mortgage interest to the homebuyer remains stable. And with the FairTax, that house payment is paid with untaxed dollars instead of after-tax dollars, that $960/month payment would cost only $960 in earnings instead of the over $1400 of earnings needed to make that same payment…and that’s after deducting the mortgage interest.
Oh, and an existing home, just like any other previously owned commodity, would not be subject to the FairTax as it would only be applicable to new items.

The absurd nature of FT comes when you imagine nursing home patients
(discovering that all of the embedded tax costs were eliminated from their bill and then) being taxed $2,000 to 4000 per month (replacing those embedded tax costs) -- and the reaction to that, when they discover they can pay their bill with untaxed earnings? There are 1.8 million people in nursing homes, and the outcry from patients and families would be stunning (especially when they see their paycheck contains total earned income with no federal income or FICA withheld).

And there are 20 million cancer victims -- 1.4 million more each year. Cancer patients can easily spend 100,000 on surgery/chemo/ doctor cost. (With the embedded taxes removed from cost of providing medical services, then adding back the FairTax the final bill should remain pretty much the same.) That would be 23,000 dollars TAX (replacing the embedded tax costs, averaging 20% to 25%, that were abolished by the FT). Some patients can spend 500,000 --- their (savings and) TAX would be 150,000 (replacing the embedded tax related costs that were abolished by the FT).

There are 45 million renters in the USA. Rent is taxed under FT (just like mortgage payments, and both would be paid for with untaxed earnings).

There will be 70 million REALLY pissed people when this fair tax takes place. Really, really pissed. Yeah, they would suddenly have to decide how they want to spend all that extra earnings that used to be deducted from their paychecks and getting to choose when they want to pay taxes versus simply having their taxes confiscated from them before they ever have any choice in how it’s spent.

I want to see it. I really do. It will be enlightening (to suddenly allow working class people to pick and choose when they want to pay for the amount of government they want).