Posted on 01/14/2008 6:51:54 AM PST by K-oneTexas
COLUMN: The FairTax Promotes Economic Equality Submitted by on 01-13-08, 10:16 pm | Updated on 01-13-08, 10:35 pm |
by Thomas Davis
President John F. Kennedy once argued that our tax system “reduces the financial incentives for personal effort, investment and risk-taking.” Unfortunately, there has not been much improvement since JFK's presidency.
In fact, the tax code has become more complicated and burdensome. Since 1954, the number of words in the IRS regulations has increased by 939 percent. Just consider, how much time do you, or more likely your parents, spend preparing taxes? Or how much money do your parents spend having an accountant prepare your family's taxes? And how much time does a company spend making business decisions with respect to the tax code?
The answer is astounding: Economists estimate that we spend over $200 billion every year and about 5.8 billion hours complying with the tax code. American companies spend another $200-300 billion making business decisions based on tax implications. The average American spends twenty-seven hours preparing his or her income tax forms, and almost 45% of tax compliance costs are directly incurred by individuals.
While the current situation is complicated, the proposed solution is simple. It's called the FairTax. Some of the nation's most eminent economists and businesspeople have researched and developed a system applying a national sales tax of 23% on all goods and services at the retail level. In return, no more income tax. No more corporate income tax. No more payroll taxes, gift tax, alternative minimum tax, self-employment tax, capital gains tax…you get the picture. By the way, no more embedded tax in the goods and services you currently purchase, which averages around 22%.
Whether you realize it or not, the cost of corporate income taxes, payroll taxes and other taxes have been factored into the price of the goods and services you purchase. So when politicians try to tax what they deem to be greedy businesses by assessing higher corporate income taxes, those taxes are actually passed on to you, the consumer. By eliminating embedded taxes, the prices of what you buy after applying the 23% consumption tax would hardly change from current prices. The difference is that you bring home your entire paycheck and that tax is transparently assessed at the end, not through an onerous and bureaucratic system applied within a price tag.
And don't worry; this simplified system is revenue neutral. The government will collect as much money using the FairTax as it does under the current system, having no effect on current ability to fund government programs. Actually, economists expect economic growth to be around 10.5% for the first year, effectively increasing the government's revenue.
Under the FairTax, you would get your entire paycheck and would only pay tax on what you consume, encouraging Americans to do something we do not do well — save. In order to make the FairTax fair, all people would receive a prebate, or advanced rebate, that reimburses them for tax paid up to the poverty line. In other words, you only pay tax for living beyond your necessities.
Without a corporate tax, America will encourage companies to come back to the United States, providing new jobs for Americans. Without embedded taxes factored into the price of a product, American companies can export goods and sell them at prices lower than foreign products. While the benefits are numerous and the drawbacks are few, I encourage you to question the FairTax Act of 2007. Challenge it. Look for shortfalls. But don't forget to take the time to find credible answers. Read The FairTax Book by Neal Boortz and Congressman John Linder. Visit FairTax.org. Search the Web for scholarly criticism. You will see that the FairTax stands for innovation and equality. Do you?
Those who wrote the the bill. Business expenses are not taxed nor are equities. Retail purchases of new items are taxed, but used items are not.
So, the fair tax consolidates all the taxes under one form. This can be problematic since certain accounts are meant to be separate (like Social Security). It also encourages saving and investment, which is important for long run GDP growth, and stops penalizing productivity (income). There are some other issues, like being an embedded tax instead of showing up on a receipt, but I think it's an overall move in the right direction. I'm open to other options, but this is the only one I've seen that does all of the above. The flat tax is also good, but won't get off the ground probably because it's called a "tax cut for the rich." I don't think it combines all the other taxes either, but it has many other desirable attributes. The fair tax is basically a national retail sales tax that's been modified to make it more politically palatable. Obviously, as seen by the many forums, it hasn't become palatable enough, but that may be due to some misunderstandings of the tax itself.
You cannot repeal a constitutional amendment by legislative vote. As long as the government has the power to level an income tax through the 16th amendment, there will be income taxes. The ONLY way this will ever work if ro the 16th Amendment to be repealed. That can ONLY be done through another amendment to the constitution.
And there will indeed be many additional lobbyists available to do that work on the appropriations side because as of now, over 50% of the lobbyists in DC are there to manipulate the tax code, not appropriations. Perhaps they will all move over to the other side, but that is a different question.
I will simply hire the lobbyist to exempt or reduce my tax exemption.
What tax exemption? Under the Fair Tax, there are none. There are also no federal business income taxes to lobby on. How do they reduce it below zero?
I will simply hire the lobbyist to end any tariff examination for my products which I import.
What's to stop you from doing that now, and what does that have to do with income taxes? The tax will be paid at retail, not at the tariff house.
I will lobby my pet legislators for legislation that defines transactions as where the contract has a forum selection clause rather than where my salesman and customer are located.
What are you trying to say? You will attempt to define a Retail sales as a B to B sale but I don't really understand what private contracts have to do with it?
If you are trying to say that the Sales Tax isn't perfect, then I agree. But it is sure a hell of a lot better than our current monster system --- unless you happen to be a tax lawyer, lobbyist, on-the-take congress critter or IRS employee.
The Fair Tax has NOTHING to do with state and locl taxes.
You might want to go to these sites (starting with the first one), you'll find almost all of your nswers there:
http://www.fairtax.org/site/PageServer?pagename=about_faq
http://denisbider.blogspot.com/2008/01/taxation-in-pictures-why-fairtax-makes.html
http://www.fairtax.org/site/PageServer
http://www.fairtax.org/site/News2?news_iv_ctrl=1541&page=NewsArticle&id=8248
http://www.fairtax.org/site/PageServer?pagename=about_ask_question about the FairTax
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25: HR 25
Why don't you point-by-point tell us exactly what makes the Fair Tax proposal and "lunatic and mendacious scheme" -- labeling each point which it is, lunatic or mendacious?
With only 20 million returns to review vs the current 150 million, I'd say the question is, what will happen to all the auditors we will no longer need. I suggest something that will utilize their accounting skills in a productive maner as opposed to manning financial star chambers where citizens must prove themselves innocent.
Your employer pays you; but he pays isn't what you get. When the guy in the job interview offers you, say, $50K, he's calculating that hiring you will cost at least $60K -- with FICA matching, benefits, and providing you with a desk and a computer. Eliminate payroll taxes altogether, and everyone who's following the rules gets a raise. If you made $50K last year, and kept $30K, and next year you could make $45K and keep $45K, is that really a pay cut?
Price go up significantly under the fairtax after the 30% sales tax is added on the price.
Yes. Retail prices will go up. I support the Fair Tax, but I'm annoyed by some of the pie-in-the-sky projections about how incomes will go up prices will come down, and the government will get revenue handed to them by elves and faeries.
The bottom line, to use the index used by The Economist, is this: How many hours do you have to work to buy a Big Mac? Under the fair tax, a Big Mac would cost more. And you'd make more per hour, if only because you're keeping what used to be FICA tax and income tax withholding.
When I was in high school, I was gassing up my '69 Dodge Dart at $0.75 a gallon. I was making eight bucks an hour. Now, I'm paying just shy of four times as much for gas, but I'm making ... let's just say considerably more than eight bucks an hour. In my daily life, in the amount of my time it costs me, gasoline has actually gotten less expensive over the last couple decades.
I would expect the end result of adopting the Fair Tax to be a wash. It's true that economics isn't a zero-sum game, but it's also true that you can't get something for nothing. TANSTAAFL.
Where you do get more savings and better efficiency is cutting the head off of the IRS. You save most of the cost of that bureaucracy (most, not all; there will still have to be a government agency to monitor tax compliance.) You get rid of the hours every American is forced to spend shuffling papers around before April 15. You put H&R Block out of business, and send those accountants and lawyers to work figuring out how to make money rather than how to hide it.
I do not expect the Fair Tax to significantly reduce the cost of taxes -- that would require spending cuts. But I do expect it to reduce the hassle, the intrusiveness, and the arbitrary power of the federal government. I expect it to build an economy that encourages thrift and saving, rather than rewarding spending and debt. I expect it to get the camel's nose out of my bank accounts.
After that, we get to work cutting budgets to bring the rate down.
YAWNzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
The sales tax infrastructure is already in place. When I go to Sam's Cub to buy stuff for my personal use, I pay sales tax; the guy behind me, who's buying stuff he'll later sell in his convenience store, doesn't. He gives his tax ID number, and then he collects the tax when he sells what he just bought.
Yes, there will still be a tax collecting and enforcing bureaucracy - it's already there. What there will not be is a bureaucracy that requires you, your employer, and your banker to hand over every detail of your financial life. For an average guy, all the government will need is one datum: How many people are in your household? End of conversation.
I'm an advocate as long as we are sure to kill the 16th amendment at the same time. (That's a tall task and I don't underestimate it by any means.)
From an economic standpoint, I do think it makes sense, but that is not what really drives me to be in favor. The biggest reason it it will end the most intrusive and dangerous threat to our freedoms. That is the mandatory reporting of intimate financial details to the central government and the ability of various zealots and social busybodies to manipulate our everyday behavior via the tax code.
As a person nearly ready for retirement who's savings have mostly been taxed already, I don't necessarily care for the fact that a sales tax will hit those assets again. But when I think of my children and grandchildren and the much brighter economic future and freedom from the prying eyes of big government that I have always been subject too, the little double taxation I will experience pails by comparison.
So, yes --- I'm doing it for the children (TM) ;~))
So because of my business I would never have to pay another tax except for food? I like this tax : ) Everyone I know will like this tax too : )
So who will fund the government?
Not directly. But if the federal government moves away from an income-based tax model to a sales-based one, I would expect states and localities to make the same move. State tax authorities use the same forms required by the IRS -- W2s, 1099s, etc. The forms come in a four-part perforated sheet; one for the feds, one for the state, one for any applicable local authority, and one for my records.
Without the federal bureaucracy to require those forms, states would be hard-pressed to keep that system going. Most would shift their revenue model to a state sales tax. Some states, like Florida and Nevada, that already have no state income tax, wouldn't change a thing.
There are real advantages to the fairtax. Unfortunately, fairtax.org is not nearly that honest as you in presenting them.
You are confused. The definition of inflation has nothing to do with how the Feds calculate CPI.You are confused as you are the only one to mention CPI.
That's a cynical -- though it might be justifiably cynical -- reading of human nature. It is not true as a point of law. The 16th amendment gives Congress the power to tax incomes -- not a requirement. If a majority of both houses of Congress vote to abolish the income tax and the president signs the bill, the income tax is gone.
Then the battle becomes repealing the 16th to ensure it doesn't come back again. But as my daddy taught me in repairing things, focus on the easy fix first -- don't replace the fuel pump on you car without first checking if you're out of gas. Don't rewire the whole fuse box without first checking if you have a dead light bulb. If your dog gets out, don't replace the whole fence without first checking whether you left the gate open.
Also keep this in mind. If it weren't for the insanity of the income tax code, Enron, WorldCom and the other fast operators could have never hoodwinked the investment community the way they did with their Byzantine financial statements. Get rid of the IRS and get rid of the myth that corporations actually pay rather than collect taxes, and tax fraud will go way down.Are you saying the Fairtax would end income reporting requirements for public held companies...Do you have a chart or other source to prove your point?
Thank you.
I do not expect the Fair Tax to reduce the total amount of tax I pay. That simply isn't what I want out of it. I want it to make government less intrusive and more efficient. To get the IRS out of my life, drive a stake through its heart, bury it, whizz on the grave, and salt the earth so nothing will grow there.
That is step one. Step two is to reduce the size, scope and cost of government. Both are important, but they don't both have to be done at the same time.
As everyone who's ever managed a household budget knows, if you're spending more than you're making, that is not good. You need to figure out how to make more, and figure out how to spend less. Two related but separate questions.
Democrats want to raise taxes and raise spending; Republicans want to cut taxes and cut spending. Except they never seem to get around to the second part. So the choice is between tax-and-spend and borrow-and-spend. Yippee.
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