Posted on 12/05/2005 2:36:33 PM PST by Eaglewatcher
Imagine if all of these trillions of dollars were added back to the American economy. On top of that, imagine saving the $500 billion compliance costs every year. These two things would give a huge boost to the American economy. Fortunately, there is a plan to make this happen, a plan sponsored by Georgia Representative John Linder. The plan is called The FairTax, or H.R. 25. Part II of this paper will describe The FairTax.
Officially called the FairTax Act of 2005, the FairTax would do many things to simplify the way Americans pay taxes, including completely abolishing the Internal Revenue Service. The FairTax would replace many of the taxes Americans pay, including the individual income tax, the alternative minimum tax (AMT), corporate and business income taxes, capital gains taxes, Social Security taxes, Medicare taxes, the self-employment tax, estate taxes, and gift taxes (Boortz 74-5). The elimination of all of these taxes would allow workers to take home all of their paychecks. No withholding and no income taxes. That's right, people would get to choose when they had to pay money to the Federal Government, and that would be at the retail counter. Their money would not be forcibly taken from them.
Notice the word replace in the paragraph above. Many politicians tried using scare tactics in the 2004 election, telling the people that their opponents who supported the FairTax would be adding the FairTax on top of all those other taxes. This is simply not true (81-2). The FairTax would replace all of those taxes. The FairTax is neither a tax cut nor a tax hike, but an alternative method of gathering revenue for the Federal Government (75). Remember the 22-cents-out-of-every-dollar embedded taxes described in Part I of this paper? Take all of those taxes out, and institute a 23-cents-of-every-dollar consumption tax, and the prices of goods and services haven't changed much.
What is the FairTax? The FairTax is a proposed national consumption tax on new goods and services at the retail level. Only new goods are included for two reasons: First, goods should only be taxed once, not every time they change hands and second, taxing only new goods keeps things simple. Imagine the bureaucracy that would be needed for all people to keep track and correctly file their taxes whenever they sold their car, etc. We are trying to move away from all of that complexity!
In Part I of this paper, I mentioned the IRS tax code and how it exceeds 54,000 pages and 2.8 million words (Americans for Fair Taxation). Ordinary Americans do not have the time to interpret this abomination called the tax code. We have to pay others called CPAs (Certified Public Accountants) to do it for us. Think about this: we have to pay people money in order to pay the government money. How ridiculous! With the FairTax, businesses would just collect the consumption tax at the time of purchase, much like they already do in states where there is a sales tax. This saves time, and money. Americans will be paying the same amount of taxes, while not having to pay CPAs. More money in the pockets of Americans (generated by not having to waste time and money with CPAs) means that Americans will have more money to spend on consumer items, and thus will be creating even more tax revenue! Additionally, those 5.8 billion hours (Boortz 43) that I mentioned earlier will be spent on producing. When Americans as an aggregate spend 5.8 billion hours trying to pay the Federal Government money, they are not at their jobs or at home doing anything truly meaningful. They are, in essence, wasting time. With the FairTax, and without the IRS, those 5.8 billion hours would add to the economy, generating more income for people to spend, which would then generate more revenue for the government. Those hours would also allow for more quality of life, giving parents more time to spend with their kids, etc.
While companies are forced to make tax-decisions they are hindered in making economic and capitalistic decisions. Eliminating the income taxes, both personal and corporate, and instituting the FairTax would help businesses. This is especially true of small businesses.
"President Bush recognizes that supporting America’s small businesses is critical to ensuring continued job creation. Small businesses create two-thirds of new private sector jobs in America, employ more than half of all workers, and account for more than half of the output of our economy." (The White House)
Small businesses employ more than half of all workers and generate more than half of our economy. Wouldn't it make sense to help small business owners? Help them out, and what do you get? More employment and an extended production possibilities curve. What kinds of things hinder small businesses? Taxes, and more specifically, personal income taxes and self-employment taxes. Because small businesses are small, the owners typically pay taxes on the personal level or as small corporations. Because they are small, these taxes hit them much harder than they would a larger corporation. Eliminating these costs would allow all businesses, small and large, to focus their attention on producing goods and services, generating wealth for themselves and taxes for the government.
More people would be subject to this tax as well, thus generating more revenue for the government (I keep mentioning more revenue for the government; I know that the government needs to greatly reduce its spending, but that's another argument for another time). Who else would be paying into our tax system? Illegal immigrants and tourists. Think about it, under the current system, neither pay income taxes or Social Security taxes anyway, because illegals don't want to get caught, and tourists don't work here. With the FairTax, they would pay into the system with every purchase they made at the retail level. Some people dislike the idea that foreigners should pay into out system, but I don't and here's why: if they want the privilege of being in this country (whether working illegally or visiting legally), then they should contribute. Don't think for a minute that Americans don't pay Germany their Value Added Tax (VAT) when we buy their products.
The FairTax would also tap the large shadow economy of the United States. Whenever you buy the services of a landscaper, maid, house painter, or hot dog vendor, and you pay them in cash, it is not likely that they are reporting most if not all of that income, and this is known as the shadow economy. That income escapes the clutches of the Federal Government, but is that really fair? If you have to pay taxes on your income as a college professor, but I don't pay taxes on my income as a theoretical house painter, is that fair? The answer is no. Under the FairTax, we both keep all of our income, and pay taxes at the cash register. In his book, which I have cited often in this paper, Neal Boortz cites a 2000 survey claiming that the “shadow economy accounts for more than 10 percent if America's GDP. . .†(93 *). Maybe that kid who mows your grass doesn't pay an income tax on the money earned by his services, but he'll pay the consumption tax when he buys a new video game at Blockbuster.
Many jobs are sent overseas when American companies take their corporate headquarters and manufacturing plants there. Why would they move away? Under the current tax system, businesses are burdened by the regulations and costs associated with compliance. How much money is overseas? “[T]he 2000 Merrill Lynch & Gemini Consulting study World Wealth Report estimates that one third of he wealth of the world's high-net-worth individuals is held offshore. How much would that be? Try $11 trillion - $11 trillion sucked out of the American economy, all of it immune to the tax obligations you suffer every April 15†(Boortz 97). Think about the size of that number. $11 trillion is enough to give 11 million people a million dollars each. This $11 trillion is not in the American economy. This $11 trillion is not producing jobs in this country, nor is it investing in capital or technology in this country.
Let's start putting all of this together, assuming that the IRS has been abolished, and the 16th Amendment has been repealed. People get to take home their whole paycheck every week or two. Their employers can hire more people because they have more money and a higher production possibilities curve. The cost of goods and services stays about the same as before because the 23% consumption tax is about the same as the previous 22% embedded tax (that most people don't even know they were paying). The shadow economy is drastically reduced. Additionally, businesses from overseas begin to come home to this relatively tax-friendly environment, bringing with them even more jobs and capital. Sounding pretty good so far, right? Now for the Grand Finale: The Prebate.
Lyndon B. Johnson launched his War on Poverty in the mid-1960s, and so far, not much has happened. Let's try a new War on Poverty: The FairTax. With this newly implemented FairTax, lower-income workers are already getting to keep their whole paycheck. Most of them never paid any appreciable amount of income taxes, but now they are not having to pay withholding taxes either. They have more money in their pockets. Goods and services cost about the same as before, so already these lower-income workers are doing better than before the FairTax. Let's help them out even further. H.R. 25, or the FairTax, provides for a prebate on the basic necessities of life. A prebate would be a check from the government given monthly to all working Americans to cover their costs of taxes on essential goods and services at the poverty line. That's right, the government would give Americans, and we'll focus on lower income Americans, a check to cover the taxes needed to pay for food and shelter up to the poverty line (Boortz 85).
Think about this for another minute, not only would lower-income Americans have more money in their pockets, but the cost of taxes on goods and services (the bare essentials) up to the poverty line would be eliminated by this prebate. This would essentially lower the prices of these goods needed by lower-income workers. Here's how this all flows out: 22% embedded taxes are eliminated, 23% sales tax is implemented, all Americans receive checks to cover this 23% up to their determined poverty line, lowering the costs yet again. The combination of more income and lower costs would greatly increase the purchasing power of lower-income workers, and would do wonders for the anti-poverty movement.
The FairTax would allow all Americans to keep their whole paycheck, while cutting taxes on goods and services up to the poverty level. The FairTax would eliminate $500 billion of waste every year, putting 5.8 billion hours to better use. The FairTax would tap the purchasing power of both illegal workers as well as perfectly legal tourists. The FairTax would greatly reduce the shadow economy in our country. The FairTax would bring back $11 trillion to our country. The FairTax would utilize all of this to generate more money for the Federal Government. The FairTax would grow the economy and help lower-income Americans. The FairTax is “about making April 15 just another beautiful spring day. . .†(Boortz XV). The FairTax Book by Neal Boortz and Congressman John Linder is a must-read, both informative and entertaining.
Bibliography Boortz, Neal & John Linder. The FairTax Book. New York: HarperCollins Publishers, 2005.
* “Friedrich Schneider and Dominik H. Enste, “Shadow Economies: Size, Causes, and Consequences,†Journal of Economic Literature, 38 (March 2000), pp. 77-114.†Cited in Boortz' The FairTax Book, page 93.
McConnell, Campbell R. & Stanley L. Brue. Economics: Principles, Problems, and Policies. 16th ed. McGraw-Hill/Irwin, 2005. Online. Americans for Fair Taxation. . Online. Tax Foundation. . Online. The White House: President George W. Bush.
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Writing science fiction for about a penny a word is no way to make a living. If you really want to make a million, the quickest way is to start your own religion.
~ L. Ron Hubbard
source...the movement for consumption-based taxation has been hijacked by a group of extremists whose principal interest is abolishing the Internal Revenue Service.21 They believe that if virtually all federal taxes are abolished and replaced with a retail sales tax like those in the states, then the states can simply collect the federal government's revenue for it, thereby allowing for abolition of the IRS...
21 The Church of Scientology originated this legislation as part of a campaign against the IRS because it refused for many years to allow gifts to the church to be deducted as legitimate charitable contributions, on the grounds that it was not a true church. The IRS eventually relented. See Davis (1997) and Starobin (1995) for discussions of the Church of Scientology's role in the sales tax campaign.
Davis, Bob. 1997. "CATS Out of the Bag." World, 12:9 (May 31/June 7).
Starobin, Paul. 1995. "No Returns." National Journal (March 18): 666-671.
Remember the 22-cents-out-of-every-dollar embedded taxes described in Part I of this paper? Take all of those taxes out, and institute a 23-cents-of-every-dollar consumption tax, and the prices of goods and services haven't changed much.
You can't get both your whole current gross pay and have post-FairTax prices remain at their current levels. Most of the 22% embedded tax Dr. Jorgensen calculated was the income tax and employee's half of Social Security. To remove the 22% embedded tax, your employer would have to retain the amount he pays you to cover your income tax. If he pays you your gross pay, the remaining embedded tax of the employer's half of SS and business profits tax is only about 9%.
income tax and employee's half of Social Security. -> employee's income tax and employee's half of Social Security.
Further, these businesses get paid a small percentage to collect these taxes, and forward them to their local (city, state, etc) tax authority. That tax authority gets paid a small percentage to collect and forward them to the Feds.
So businesses don't even deal with the feds, just their local sales tax authority.
Money flows from the states to the feds not the other way around.
ping
But Dr Jorgensen assumed an excessive amount of labor costs in his calculations. In this country labor is making up a smaller and smaller amount of production costs of manufactured goods as the efficiency of capital rises year after year.
To the savings in actual embedded tax and embedded fica, you have to add the enormous burden of tax accounting, and reporting that is imposed on business. In anything but the smallest business it is the cost-center that falls right after raw materials and labor. For most manufacturing businesses this would totally disappear. Corporations would not pay or file taxes unless they engage in retail sales.
The calculation model for Fairtax has been rigorously gone over by large number of economists (check the faq) and it has been found to be very sound.
Pick at all the nits as you may, it does not collect more (or less) Tax, and will not raise the total price at the register more than the increase in your paycheck. It couldn't.
Oh geesh will you get some new material - or go take a nap.
Nobody is going to buy the old if your for the fairtax you must be a "Church of Scientology nut scare".
The facts are out - this is a great idea - bring it on.
Taxes, and more specifically, personal income taxes and self-employment taxes. Because small businesses are small, the owners typically pay taxes on the personal level or as small corporations.And with the Fairtax, small business owners would have to raise their prices the amount of the tax. If small business owners selling retail or performing a service (a huge part of our economy) didn't raise their prices they would take a double tax hit, Once directly to the government on their sales/service and again when they spend what money they have left.
So businesses don't even deal with the feds, just their local sales tax authority.At what point does a local tax collector collecting federal taxes NOT become a federal tax collector?
can someone explain the "cost of hidden taxes" on this page:
http://www.fairtax.org/tax_returns_single.html
Cost of hidden taxes due to the income tax system: -3,101
$819 of it is the matching payroll taxes, what are the other $2282 in 'hidden' taxes?
i agree. why not skip the federal individual/sales/etc tax altogether and just directly charge each state x dollars per year -- where x is some formula based on who knows what.
let each state figure out how they are going to pay/pass-on the costs of being part of the United States.
that would be one way to make the _17th_ amendment disappear quickly. the founding fathers rejected income taxes (or any direct taxes) unless they were apportioned to each state by population. also, yes i meant 17 not 16 - states will want their vote back once they are getting the bill.
Sorry, Willie Gee - that's still a lie. the FairTax was never originated by the Church of Scientology as your out of date posting relates.
L. Ron may have been a good pal of yours, but he had nothing to do with the FairTax, buddy. Many people have told you that and yet you still keep posting the same untruth. You Squirrels seem to be like that - never met a lie you didn't like.
| JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive) |
| Posted by RobFromGa On News/Activism 08/25/2005 12:40:44 AM EDT · 702 replies · 8,478+ views |
|
The whole idea of keeping your whole paycheck and prices staying the same has been repudiated by Neal Boortz and John Linder now. The FairTax requires either cuts in gross pay, or large increases in the price of every good and service. There are other problems as well like compliance with the new HappyTax Compliance Centers re: business use rebates and the huge incentive to cheat that a 30% sales tax will cause. FairTax supporters for the most part are unwilling to admit that they have been lied to re: the specifics of their plan and complain loudly that anyone who is against the FairTax is pro-IRS and pro-tyranny and that we are all probably doing things that are illegal in the current system. They are wrong, of course, and not wanting to roll the dice with the FairTax does not mean that some reform is not a good step. I for one want to fix our Entitlement programs-- SocSec and Medicare, and cut income tax rates further to spur economic growth. |
Tax collection will be done by the most local authority. So if your city has a sales tax you deal with a city employee.
Local city/state employees are a hell of alot easier to deal with than a buearucrat 2000 miles away. You can go down there and rattle their cage and actually make your point without having to wade thru 15 layers of lawyers and all the expense involved in that.
Further, The calculations involved for FairTax are EASIER than local sales tax. There are no retail exemptions for one kind of item or another. The only exemptions would be for those having a resale certificate, which states and local government already know how to deal with.
The pressure will be on local and state sales tax authorities to simplfy their tax, removing exempted items and thereby (perhaps)lowering the effective rate.
Not true. Any purchase made for any business purpose would be exempt from FairTax. This will either be a mess for the retailer, or for the business owner trying to obtain rebates for the thousands of items purchased for business-- like all the expenses for the sales force.
So lets see, here, You use your own post to support your own post. Great reporting. Glad your not biased.
There is a lot of input from all the regulars on both sides in that thread and many others. No need to hash over the same details for the gazillionth time is my motto.
do a google search on "jorgenson fairtax" and see what comes up #1. that thread is linked all over the place.
So if your city has a sales tax you deal with a city employee.Uh huh and the discussion is about a federal sales tax. So what was your point again?
Further, The calculations involved for FairTax are EASIER than local sales tax.Really? What is the sales tax rate of the Fairtax?
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