Supporters of the Fair Tax like to say that there have been all kinds of reports by economists that say the Fair Tax will work, and they like to point to Florida, Tennessee, and Texas as examples.
The problem is, they never show you the reports. It is the mythical stack of papers with names that is pointed to but never shown.
Me? I’ve got a report that says it will NOT work in Georgia, and here it is.
This report points out that the State most similar to Georgia that has no individual income tax is actually Washington. But here’s the kicker: to get to a revenue structure the same as Washington’s, Georgia would actually have to INCREASE “hidden” and other taxes, some by more than 150 THOUSAND percent!
Indeed, Georgia would have to increase our property taxes alone by more than 2,000%. In other words, take your property tax bill right now and multiply it by 20. Is that a price you are willing to pay for a “Fair” Tax?
We would also have to increase our motor fuels tax by 28%. Think about last year, when gas was approaching the $5/gallon mark. Do you really want to pay an extra 28 cents per gallon with those prices just so you can have a “Fair” Tax? Heck, I don’t want to pay an extra 28 cents right now, with gas prices half of what they were last summer!
Insurance premiums would see a 14% INCREASE, just in extra taxes to pay for this so-called “Fair” Tax, and tobacco taxes would increase 62%, while alcohol taxes would increase nearly 35%. Alcoholic beverage license taxes – I’m assuming this is what bars have to pay? – would increase by more than 350% to pay for this “Fair” Tax!
The table on pages 34 and 35 of the report shows these same figures, but also lists the changes Georgia would have to make to match several other states – often with similar results as far as increases in ancillary taxes.
Moving on from the Washington comparison, the report points out that one way to make up for no individual income tax is to rely more on Federal grants. Indeed, of the seven states this report details, only Florida and Nevada have less reliance per capita on Federal grants than Georgia – and Florida is only slightly less than Georgia, at $1,103 for every man, woman, and child in Florida coming from the Feds vs $1,110 in Georgia.
Speaking of Florida – great segue, eh? – let’s look at the actual sales tax between the two states. Georgia’s state sales tax is 4%, Florida’s is 6%. With just that alone, the report states
If the per capita sales tax bases were the same in the two states, this rate differential would imply that Florida should raise 1.5 times as much revenue as Georgia. But in addition, Florida’s per capita income is 9.6 percent greater than Georgia’s, and this should translate into a larger sales tax base. The combined higher sales tax rate and larger income suggests that Florida sales tax revenue per capita should be 1.64 percent larger.
It should also be noted that Florida taxes TWICE as many services as Georgia – meaning that their sales tax base is actually even broader than that quote suggests! Indeed, of the eight states analyzed by the report that had a sales tax, only Nevada taxed fewer services than Georgia, and the remaining 6 (not counting Nevada and Georgia), every single State taxed at LEAST double the services Georgia does!
Furthermore, as we all know, Florida gets a LOT more tourists than Georgia does. Indeed, tourist spending in FL was 3.5 times higher than in Georgia – all with a higher sales tax, meaning the sales tax should have generated even MORE revenue than the above numbers suggest.
In other words, Florida is actually LOSING money on their sales tax!
Also, let’s not forget that sleeping/accomodation taxes in Florida range between 9.5% and 13% for every single hotel room/rental cabin in the State, every night of the year. Assume a base room cost of $50, and that tax generates at least $5 every night – or roughly $1500 per year, per room. Now think of all the developed coastline Florida has, such as at Panama City, Destin, Daytona, Ft Lauderdale, Miami, and others. That’s not even counting popular inland destinations such as DisneyWorld, Busch Gardens, Universal Studios, or any other event!
All of this evidence is damning enough for the “Fair” Tax, but perhaps these last two quotes from the report sum it up best:
Alaska and Wyoming rely heavily on severance taxes. But these are the only two states that are able to employ such a state-specific tax base to largely replace the revenue from not having an income tax. The other somewhat unique state-specific tax bases are: 1) visitors to Florida; 2) legalized gambling in Nevada; 3) oil in Texas.
Other than these unique state-specific sources of revenue, the states without an income tax or a limited income tax generally rely more heavily on the sales tax by imposing a higher tax rate and/or using a broader base than does Georgia. But in addition, all of these states collect more revenue per capita than Georgia from nearly all other revenue sources listed in Table 3
(emphasis mine, Table 3 is on pages 21 and 22 of the document)
There is no one revenue source that would make up the difference for not having a personal income tax. Thus, Georgia would likely have to increase revenue from several sources.
There is no common set of a few revenue sources that make up for the absence of revenue from a personal income tax.
One of the primary tenets of the “Fair” Tax is that it would be a direct replacement of the income tax and all of the “hidden” taxes.
This report just blew that tenet right out of the water. Indeed, many of those “hidden” taxes would be dramatically INCREASED, and more would have to be added!!
Another primary tenet of the “Fair” Tax is that it will replace the Department of Revenue/IRS.
Eliminate the Department of Revenue/IRS? The “Fair” Tax would actually make it LARGER and MORE complex due to having MORE sources of taxes to collect and coordinate!
So you REALLY think you want a “Fair” Tax?
FINALLY! It would seem that when pols wrap a bad idea in a feelgood name, then the gullible and the media don’t look past the wrapper.
Want a Fair Tax? Then on the federal level, eliminate the AMT altogether or at least raise the exemption to $500,000; cap capital gains at 15%; place a 25% effective rate ceiling on incomes under $100,000…
At the state of Georgia level, among other changes, raise the standard deduction from its 1970s amounts and adopt the same amounts used on federal 1040s. Further, the Georgia DOR’s technology is decades behind and must be upgraded during the next governor’s term, a problem that only Austin Scott seems to be addressing …
… and, most importantly, in all levels of government insist that our leaders adopt a cultural philosophy of efficiency and performance standards – rather than unjustfiable porkulous bureaucracy and irresponsible deficit spending.
Thank you for taking the time to give folks the “fair” explanation.
The tax reform I’m most interested in (and I think most working folks are too) is Less Tax. At the end of the day I don’t care what you call it but I want fewer people sitting on their butts living off government subsidies paid for with my taxes. I want government to spend less, waste less and grow less. I want the parasites hungry and hunting work not riding around talking on a cell phone on my dime. No matter what tax scheme we use we’re in deep trouble if we don’t get a handle on government spending and giveaways.
I’m a FairTax supporter, and I’ve always known that it cannot work on a state level. Oxendine is using it to astroturf, the same way he is with ObamaCare.
I also found, while skimming through Wayne Allyn Root’s book the other day, his idea to have the states pay federal taxes. I kind of like that too.
Jeff,
First, I would like to thank you for sending me the report last night.
Second, I should note that taxation is tantamount to slavery, but since there are some essential services provided by the state, I can see how voluntary donations may not meet the budgetary obligations set by the state. That being said, I don’t think enough is being done in this state to promote the idea of fiscal responsibility of the state government. The idea of the zero-based budget didn’t gain any traction under the Gold Dome until the 2009 legislative session. That’s another discussion for another time, but important to note before I defend some taxation.
Now, onto my comments…
I find it interesting that you took away that this report is “damning” the idea of a consumption-based tax system. You base this on specific examples across different comparisons from the report, merely pointing out the differences between the state of Georgia and several states with no income tax. This is the biggest problem that I have with the report AND your post… the “cherry-picking” that is “necessary” to keep the state’s coffers from resembling California’s. The report assumes that we must model any taxation system after one of the 7 states without an income tax. That is simply not the case. We have a responsibility to build the “best” system to meet the budget (please note my earlier damnation of our state’s spending).
I few factual corrections to note:
- Increasing the gasoline tax by 28% does not equate to increasing it $.28 per gallon. It merely means that the state would have to increase the $.221 we pay for gas to $.283, which is an increase of $.062, a far cry from $.28 per gallon. Since you referenced the higher gas prices from last summer, you should also note that the state lowered gas taxes $.04, effective Jan. 1, 2009. These numbers are based on the whole gas tax, which includes the $.075 flat excise tax for DOT projects.
- Increasing the level of taxation on insurance DOES NOT EQUATE to a 14% increase in premiums. It merely means that the PORTION of your premium that is seized by the state goes up 14%.
- You fail to note that the number of services and fees taxed by the state is FAR lower in this state than most of the others in the report (and across the nation) comparatively.
- You also imply that there is a formal plan to implement a “FairTax” in this state, which there is not. There is a movement to create something modeled similarly to national “FairTax” plan, however details are far from formal or final.
- You also fail to note that the report suggests that there may be a need to push the responsibility of taxing and collecting to the counties and municipalities for their own revenue. I support that idea, since the money is being collected and spent locally, rather than being doled out by those under the Gold Dome. Also, this is one less layer of governmental inefficiency to “dilute the dollars”.
- You inaccurately use the “hidden” taxes portion of the national FairTax plan. You suggest that fees and licenses and property taxes are among those, where the national FairTax plan only eliminates the embedded payroll taxes in the goods and services you pay for. You and I both know that companies don’t pay taxes, they build them into the price they charge to ensure their margins stay about the same.
- You also fail to note the, albeit small, decrease in price for the goods and services produced, manufactured, transported, housed, and stocked at any portion within the state whose employer no longer “pays” their portion of the state income tax.
- Alternatively, you fail to note the increased actual wage of the individual who works in the state. Not only is his withholding decreased, his value to the company is increased (company is no longer including the payroll taxes in his compensation package), and good corporate citizens will reward that with a compensatory increase.
Personally, I support the idea of a consumption-based tax system, because I believe it allows the individual to choose their level of taxation, by choosing how much they spend on material goods. Rather than giving over a portion of your labor to your slave master, you can choose what dollars of yours go toward the slave master by choosing what you buy.
Jeff, the Fair Tax concept is based upon the Federal government and our Federal tax system… not individual state tax systems. You’re comparing apples and oranges.
Chuck,
First, thanks for commenting. Considering that yours were one of the first political columns I ever actively read, it truly is an honor.
Now, here’s my question though, and the main reason I look at the FairTax on a State level: 3 of the 7 GOP Governor candidates actively push it as part of their platform. I’ll give Deal a pass, as cosponsoring it is one of few things he’s done in 16 years in DC – and he IS a member of Congress, where this bill IS designed to be considered. (I still say it has holes even at that level, but I’ll leave that discussion for another day.
But why are Handel and Ox pushing it? They have never campaigned for Congress, they are not running for Congress now, and Governors have had precisely ZERO say in who goes to Congress since the 17th Amendment was ratified nearly 100 years ago. To me, that means they want a state-level version of this concept, and these numbers show that such an idea simply doesn’t hold water.
[...] thousand cuts. He specifically mentions Florida and Tennessee, and as I showed in the post where I discussed this, FL and TN have very different resources than we do. Indeed, the GSU study specifically rejected [...]