Nelson Attacks FairTax
Senator Ben Nelson is campaigning to keep his seat in Nebraska, and one of the tactics he has chosen is to attack the idea of a national sales tax (not referring to the sales tax directly as the FairTax is a veiled attempt to keep our supporters at bay). His opponent, Pete Ricketts, has gone on record saying that the current tax system is broken and that all options should be explored for a solution, including the FairTax. Nelson is now distorting Ricketts’s position at the same time that he distorts the impact of the FairTax.
This is the verbatim text of a television ad Nelson is currently running:
“Pete Ricketts wants to create a national sales tax that will add 30 percent onto everything you buy; 30 percent on a new house, or car, even 30 percent on groceries, plus eliminate all mortgage and charitable deductions. Ricketts’s plan would raise taxes on virtually all Nebraskans, but cut taxes for millionaires like himself. Because what’s good for Pete Ricketts is bad for working Nebraskans.”
“I’m Senator Ben Nelson, and I approved this ad.”
The video portion of this ad says, “Ricketts Tax Plan Raises taxes on 95% Nebraskans” and cites a 2004 study by the Institute on Taxation and Economic Policy as the source of this information.
FairTax.org takes no position on any candidate in any political race, and we are not advocating for or against either candidate in the Nebraska Senate race. However, we do advocate for the FairTax, and when people like Ben Nelson say false things about it, we have an obligation to correct the record.
In myth one, the Nelson campaign parrots the ostensible findings of an Institute on Taxation and Economic Policy (ITEP) study that “middle class Nebraskans would see their tax burden increase from $2,300-$3,800 annually [under the consumption tax].”
The truth is that a switch to the FairTax eliminates 95 percent of the over $265 billion compliance costs which fall disproportionately upon middle-income taxpayers. The truth is the FairTax causes real wages to rise by 13.0 percent over the near term, while the destructiveness of the present system would cause an 18.0 percent decline over the long run in after-tax take-home pay.
The ad says that the FairTax would cut taxes for millionaires, but the truth is the FairTax is progressive and rewards low-income households with 26.7 percent more purchasing power, middle-income households with 10.9 percent more purchasing power, and high-income households with 4.7 percent more purchasing power. This is according to independent Boston University economists, who didn’t consult with their Washington lobbyists.
The truth is that the FairTax removes the tax on upward mobility. Keeping the payroll tax, on the other hand, would hurt the three-quarters of Americans who pay more in payroll taxes than income taxes. The FairTax is the only tax reform plan that untaxes the poor and allows Americans to keep our entire paycheck without restrictions on what to save, how to save, or who can save. If one chooses to earn more, save for the future, give away wealth so others can advance, or educate themselves, none of these activities are subject to federal tax under the FairTax. Current incentives today from IRAs to tuition credits phase out for middle-income taxpayers, benefiting only those with wealth or low income.
In myth two, Nelson states that “a national sales tax … will add 30 percent onto everything you buy … plus eliminate all mortgage and charitable deductions.” That is both false and misleading. Nelson fails to mention we already pay hidden taxes buried in the prices of everything we buy today. By eliminating these hidden costs, most economists expect pre-tax prices will fall. In any case, we’ll have our entire paycheck to spend, not what remains after 25 percent or more in federal taxes is taken out. There is no way the charitable contribution or mortgage interest deduction can match those incentives today.
Nelson also fails to point out that two-thirds of taxpayers do not itemize today, and get no benefit from either mortgage or charitable deductions. Even if we are in the minority who itemize, we can’t deduct these payments from payroll taxes. The truth is that with the repeal of all income and payroll taxes, the FairTax doesn’t just eliminate deductions, it makes them obsolete. Equally important, Nelson fails to point out that most home buyers purchase existing homes, which are fully untaxed under the FairTax.
Tax favoritism is one of the biggest things lobbyists have to sell. The FairTax renders obsolete those lobbyists whose livelihood depends on further complicating the law. More than half a million Americans are vocal supporters of replacing the current income tax system with a simple, transparent, pro-growth, pro-savings national retail sales tax, and the FairTax now has over 60 congressional co-sponsors. Although some politicians may attack the FairTax, you won’t hear many of them defending the 60,000 page monstrosity that is the current tax system. The truth is that the FairTax is defensible, while the income tax is not.