DownsizeDC Conference Call
By: BJ Lawson
Yesterday afternoon I had a great discussion with Jim Babka, host of the weekly DownsizeDC Conference Call. Jim and DownsizeDC are on the forefront of the fight for good government, and I became an enthusiastic supporter after studying three of their common sense trans-partisan good government solutions (is that too many adjectives?):
Here’s a quick snippet from a caller’s question on one of my favorite topics: the “royalty” we elect into government:
Here’s our full conversation (about 30 minutes):
June 9th, 2008 at 4:00 pm
BJ,
I’ve loved your renewed attention to your blog the past few days. I’m also glad you’ve taken the time to familiarize yourself with these wonderful pieces of legislation. However, I wonder if, in their desperation to keep a hold on power, the hacks in Washington would accuse you of letting the small-government lobby write the laws when proposing the Write the Laws act..? It’s become just that absurd in DC; it wouldn’t surprise me in the least.
Anyway, I look forward to working for you later this summer and this fall! Keep up the good work - we need you in Washington!
June 10th, 2008 at 10:26 am
I have written to Jim Babka a few times since you announced your candidacy hoping he would pick you up for his show. It just seems like you’re a model candidate for the Downsize DC vision, perhaps even moreso than Ron Paul himself in some ways.
Fantastic show, and like Jim said, you really sounded well prepared and like a serious credible candidate who is ready to go toe to toe with Price.
I just hope you get that opportunity to ask him for a direct answer on why he won’t sponsor these common sense bills that you’re now on the record as supporting.
June 13th, 2008 at 3:15 pm
Am I correct in assuming you no longer support the Fairtax? You make two comments that imply you no longer support the Fairtax. “At one time I even supported the Fairtax” and “there is no substitute for small government” in regards to the Fairtax.
You are correct, there is no substitute for small government, and what better way to combat government expansion other than the Fairtax. Under the Fairtax if politicians want to raise taxes to expand government they have to do it to everyone, not just the rich. It would be much harder in that environment for a politician to expand government. So why not implement a tax code that will almost assuredly prevent government expansion and then focus on decreasing the size of government? So long as the government can tax income, it will continue to grow. The Fairtax would also not stand a chance if its intention was to decrease the size of government. If the Fairtax is going to get passed its main objectives must be economic benefits, not ideology. The Fairtax will require the support of both Republicans AND Democrats to get passed, and focusing on the latter will not accomplish that goal.
You also comment on the fact that inflation along with stagnate wages makes for a tax increase for the government. Surely when looking at all of the benefits of the Fairtax this will not stop you from supporting it. If this is your only gripe with the Fairtax then that should tell you how good it would be for our country. Compare that one gripe to how many gripes you can think of in regards to our current tax code. No tax system is perfect, including the Fairtax, but can you think of a better way to raise revenue for government?
June 13th, 2008 at 9:19 pm
Stephen - You are correct in that I’ve reconsidered my support for the FairTax:
http://www.lawsonforcongress.com/issues/taxation
I absolutely agree that we need to get rid of the IRS, but we need to focus the tremendous grassroots enthusiasm from the FairTax towards first reducing the size and cost of government.
With gas and grocery bills hurting more and more Americans, the FairTax is even less attractive — the sales tax will apply to everything, even necessities, and adding a national consumption tax when costs are going up but income is stagnant will only accelerate the evisceration of our middle class.
Finally, adjusting the prebate based upon reported inflation numbers will make even more people dependent on the BLS’s funny math that has made the CPI more and more of a joke over the past 20 years. Right now, Social Security recipients are on the receiving end of “cost of living allowances” that don’t keep up with inflation assuming a standard of living.
June 14th, 2008 at 3:02 pm
I would first like to thank you for taking the time to respond to my comment. I doubt many elected representatives (or in your case, future elected representatives!) take the time to respond to their constituents, so thank you.
However, upon further thought, I now disagree with your belief that the Fairtax will hurt people even more under rising prices and stagnant wages. The first Fairtax book talks about how prices will not rise under the Fairtax because embedded costs will disappear. With prices essentially staying the same under the Fairtax then the Fairtax does not hurt people nor is it a tax hike for the government because the pre-bate will increase as well.
In regards to the pre-bate being tied to the BLS’s CPI, could you not work to tie the Fairtax to something more relevant? Or work to fix the BLS’s funny math? The first option seems entirely plausible, and if so, then I can think of no reason for you to reconsider your support.
Lastly, so long as you support a smaller, constitutional government, you will always have my vote and support. I, however, feel strongly that the Fairtax is the best step in the right direction to making a smaller government possible. I would please ask you to reconsider your new position. The only other option I can see to creating a smaller government, in regards to taxation, is to eliminate witholding’s, making socialism and bigger government political suicide.
June 14th, 2008 at 8:24 pm
I was surprised to read that you changed your position on the Fair Tax. My vote for you was based on your support for the tax so that we would have an advocate in Congress to get it passed. I would consider this a serious flip-flop and am disappointed that Stephen had to point out the errors with your reasoning to not support the FairTax.
I agree that govenrnment needs to be smaller, and the Fair Tax will help. So many of the government problems could be solved with the Fair Tax. If John McCain wanted to get the money out of politics, he should support the Fair Tax instead of inacting legislation to slowly take away our freedom of speech.
Also, the Fair Tax will not eliminate the IRS. There will need to be an agency to handle the collected taxes but it won’t take as many people. The IRS will still fill that need.
June 14th, 2008 at 10:03 pm
Karen & Stephen — Stephen makes the following statement:
“The first Fairtax book talks about how prices will not rise under the Fairtax because embedded costs will disappear.”
In my discussion with the national FairTax folks about these issues, I received the following response from Philip Hinson:
“Second, there would not be a 30% increase in after-tax costs of consumer goods, at least not those produced in the US. Although we now recognize that the claim that there would be enough savings from the elimination of the current system to almost completely offset the imposition of the sales tax is overly optimistic, that does not mean that those savings would be zero. More specifically, the elimination of corporate income taxes and the employer paid portion of payroll taxes (along with the enormous compliance costs associated with both) would result in savings of roughly 8 - 12% according to Dr. Walby.”
It’s clear that the FairTax *will* be felt at the checkout register. As it should be — we have an expensive government.
Regarding Stephen’s comment, “However, upon further thought, I now disagree with your belief that the Fairtax will hurt people even more under rising prices and stagnant wages”:
Stephen, we are already IN an environment of rising costs — food and energy inflation are really hurting people nowadays, and we are paying more for milk and gas than we were a year ago. Adding an 18-22% consumption tax on TOP of 12-15% grocery and gas bill inflation is unacceptable — especially when incomes are stagnant, and not keeping up with inflation:
milk @ $3 / gallon ~> $3.60 with tax
milk @ $4 / gallon ~> $4.80 with tax
milk @ $5 / gallon ~> $6.00 with tax
… the government gets a tax increase with inflation, but folks don’t have more money to pay it.
We have serious imbalances facing our economy. When the government is growing M3 at over 15% per year, and our dollar is losing its purchasing power relative to foreign currencies, prices will continue to go up. The problem is the size of our government, unrestrained spending, and the foundation of our monetary and banking system.
There is no silver bullet for the challenges we face, and I reached out to the FairTax organization in addressing these questions. Ultimately, we *must* focus our attention on reducing the size of government to the point that an income tax, and IRS, are unnecessary. We once met the needs of our federal government with non-discriminatory tariffs and excise taxes.
A consumption tax can work given an appropriately-sized government and stable price environment, but it is disingenuous to pretend that changing the way we tax can solve our problems when we have a spending problem that absolutely must be addressed first. There is no substitute for a smaller, less expensive, Constitutional federal government.
June 15th, 2008 at 8:34 pm
If I am understanding what Phillip Hinson said correctly then he is saying that when embedded costs disappear, prices will not be the same under the Fairtax, they will be higher. People will still save money, but not as much as originally thought. I will address the first issue from that point of view.
In your example you use milk. Each time the price of milk increases the cost of living goes up and so does the pre-bate. If its indexed to something relevant, then why is this an issue? There is no tax increase for government if it has to give back the extra money it collects through the pre-bate. While it may be more difficult for the consumer to afford the milk, the Fairtax has no bearing on the increasing difficulty for the consumer because of the pre-bate.
Your next point is, “There is no substitute for a smaller, less expensive, Constitutional federal government.” The more I think about this, the more I love the Fairtax. In order for this to happen withholdings and the income tax must be eliminated. In Milton Friedman’s book Free to Choose (I think it was this book) he argues for the elimination of the income tax. One reason is because it was not until the income taxes implementation that our government ballooned to its current size. He has also publicly stated that one of his biggest regrets is with-holdings because it also greatly contributed to the size of government.
In order to shrink government these two things must be eliminated. The Fairtax does both! It would also seem much easier to shrink the size government with both the income tax and with-holdings eliminated. Under the Fairtax there is basically just one tax to worry about cutting.
You also mention the state of our economy. Well maybe we need to stop punishing people and businesses for being productive. Are there any countries in the world that currently allow businesses to operate in a tax free environment? I wonder how many businesses would move to the U.S. and create jobs under the Fairtax.
And of course, I hope you had a good Father’s day.
June 16th, 2008 at 10:29 am
Stephen — Let me again state that I share your commitment to eliminate the IRS, and the income tax. I do think it’s important, however, to be realistic in assessing what the FairTax does, and what it does not do.
The FairTax is a revenue-neutral replacement for our currently disastrous income/capital gains/estate tax system. How does that affect the size of the federal government? According to the FairTax’s FAQ page:
Ultimately, the tax rate will be dictated by the size of government. If government gets larger, higher tax rates will be required. If government shrinks relative to the economy, then the tax rate will fall.
The FairTax is a highly-visible, single rate tax, but it does not affect the size of government.
Again, my concern is that our currency is losing its purchasing power at an alarming rate. This inflation partially reflects the size of our government, and our government’s massive current and future obligations that require constant issuance of new debt (=money).
Our flawed tax code is not responsible for inflation. Inflation is much more the consequence of our government’s unsustainable growth, and the monetary policy that takes root in this environment.
Finally, regarding the mechanics of prebate calculation: The prebate in HR25 is indexed to inflation via the poverty income levels reported by the Department of Health and Human Services:
(a) In General- The monthly poverty level for any particular month shall be one-twelfth of the `annual poverty level.’ For purposes of this section the `annual poverty level’ shall be the sum of–
`(1) the annual level determined by the Department of Health and Human Services poverty guidelines required by sections 652 and 673(2) of the Omnibus Reconciliation Act of 1981 for a particular family size, and
`(2) in case of families that include a married couple, the `annual marriage penalty elimination amount’.
Here is a snapshot of HHS’s poverty levels since 1982:
http://aspe.hhs.gov/poverty/figures-fed-reg.shtml
As you can see, the increase in poverty level income is going up in the 2-3% range, similar to reported levels of core inflation. So families at the poverty level seeing 15-20% increases in grocery and gas bills will not have a commensurate increase in their prebate.
June 16th, 2008 at 8:26 pm
Hmm, after reading some of my responses I did not mean to imply that by implementing the Fairtax, the size of government would just automatically decrease. However, I do not believe this is a reason to not support the Fairtax.
Currently, in order to shrink government how many taxes would have to be eliminated? All of these taxes would have to be eliminated on one by one under the current system. (Have Republicans ever eliminated a tax? They always try to cut them, never eliminate them.) Not only that, but the 16th amendment would have to be repealed to ensure that taxes on income do not return. The Fairtax takes care of all these issues in one fatal swoop. I understand your point that this alone will not shrink the size of government, but would it not be easier to decrease the size of government if only one tax needs to be cut? I certainly think so. Not only would it be easier to shrink government, but it would also be much harder to grow the size of government when taxes have to be raised on everyone, not just a particular group.
I also understand that implementing the Fairtax will not combat inflation. Just like above though, will it not be easier to combat the spending that causes inflation with just one tax to be cut?
The Fairtax is not designed to combat the size of government or inflation, but it will surely make the end goal of a smaller, more constitutional government easier to realize. This is why i feel it deserves your support. It is the easiest avenue to what we both seek, a smaller more constitutional government.
In regards to the pre-bate, why could it not be tied to something more relevant? Clearly you’re correct, it needs to be tied to something more relevant. So why do you feel not supporting the Fairtax is a better choice than improving it? That is a far less undertaking than decreasing the size of government.
June 20th, 2008 at 11:54 pm
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July 3rd, 2008 at 11:15 am
If I understand correctly, it’s not that the fair tax is a bad idea, it’s just not a good idea right now. We have too many other problems to deal with - the size of our government being the most pressing. To get out of debt, we need to reduce our spending faster than we reduce our taxes. Once the government and our taxes are down to realistic sizes we can worry about just how the money is collected.