The FairTax Promotes Economic Equality by Thomas Davis

InsideVandy.com ^ | 13 January 2008 | Thomas Davis

[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?

[groanup]

Enron, WorldCom and the other fast operators could have never hoodwinked the investment community

Good point. A lot of the stuff they were doing were complicated tax shelter investments. So you know the originators of that sort of thing make tons of money off of them. I bet some of them are on this thread right now bashing the FairTax.

[groanup]

IOW another hollow claim that you can’t back up. If only I had a nickel for every one of those.

[Ditto]

A lot of the stuff they were doing were complicated tax shelter investments.

Actually, what they were doing was hiding their losses as off shore tax shelters. I pretty clever fraud when you think about it because the rational analyst would assume they are sheltering gains, not losses. Without the inpentratable complexity of the tax code, they could have never gotten away with it for so long.

I bet some of them are on this thread right now bashing the FairTax.

I don't know if the opponents here are part of that bunch, but there is no doubt that the tax shelter industry sees the Fair Tax as a death threat.

[groanup]

there is no doubt that the tax shelter industry sees the Fair Tax as a death threat.

So does the life insurance and annuity industry (mistakenly) because the tax shelter feature of those products is one of the most important selling points for the more expensive (high fees) of the things.

[Bryan24]

There's already a 23% tax on those goods. Corporations don't pay the tax; they pass it along to the consumer. It's embedded in the cost of the product.

BTW, can you imagine what a 0% income tax would do to our economy?

Yep, nothing. It would be eaten up by a 30% (Yeah, I know, 23%) consumption tax. THe longer I study the FairTax, the less I like it.

[Ditto]

Are you saying the Fairtax would end income reporting requirements for public held companies...

So you are telling me you don't know the difference between the IRS and the SEC and you want to comment on tax policy? Annual reports and quarterly 10k reports are required by the SEC but they have become virtual gobbly gook because of the nearly impenetrable complexity of the IRS code -- which is exactly the game Ken Lay and Andy Fastow played at Enron and managed to hoodwink some of the brightest investors in the world in doing so.

Those reports also perpetuate the myth that a business pays taxes -- some annual reports actually brag about 'how much they give back."

That's total nonsense. No business pays taxes. They never have and never will. They only collect taxes --- from their customers, their employees and their shareholders. All taxes are paid by individual people, even if they don't get a receipt for it which they most often don't.

And you still refuse to answer the question about what happens if business taxes increase? Who pays those additional taxes?

[Ditto]

In closing, I believe that if the Fair Tax is to become a reality, the U.S. government would be well-served to make use of the existing expertise of the states. Many states have administered consumption taxes since the 1930s and have developed particular capabilities in this area. We also have extensive experience in dealing with the affected businesses. As long as the administrative fee paid to the state is adequate in relation to the costs of collection, I see no reason that the State of Texas could not effectively administer the Fair Tax.

Under the Fair Tax bill as proposed, I believe the states would be allowed to retain 1/4 percent (of 23%) of the Fair Tax collection as an administrative fee. That sure sounds like way more than enough to pay for an upgrade to the state of Texas' computer system that would be necessary. Since they already collect sales taxes from exactly the same sources, it's a mear change in precentage, not in scope.

Meanwhile, we would be able to close down IRS collection and processing offices from Boston to San Diego, have nice going away parties for departing H & R Block employees, and make April 15 just another day.

I don't see a problem there.

[Ditto]

To teenagers who are STILL only making $8 per hour, $3 gas is a big deal.

Back when I was making $1.50 an hour, gas at 70 cents a was a pretty damn big deal too. And that was driving a '56 Olds that got 10 miles a gal on a good day going downhill.

Fact is, it's still cheaper to drive today than it was then. That's why we drive more than we did then. But then again, I didn't have a cell phone bill, tattoos, piercings, or all the other stuff that kids consider necessities today. ;~))

[SAJ]

Wrong? Well, well. Gee, I guess that every existing wage and/or purchase contract will NOT be affected by insituting a 'fair' tax.

It'll be amusing watching you lot try to sell that notion to, say, the Teamsters.

Should be quite a chuckle watching. I don't fancy popcorn, but I'll get out the cream cheese and pretzels.

[SAJ]

Considering that I track commodity prices for my living, every business day, and have for 30-odd years, and considering that your statement is so factually in error -- which I will be pleased to demonstrate on request with the very hardest of price figures, right straight from the exchanges and the spot markets, at your convenience -- the only sensible thing to do just now is to quote Santayana:

''Those who cannot remember the past are condemned to repeat it.'' -- from 'Life of Reason'

It might be appropriate to amend his notable comment slightly in your case. ''

[Turret Gunner A20]

If only I had a nickel for every one of those.

You'd have the demorats getting hysterical over your obscenely large income.

[SAJ]

I ''need'' to state...???

What rubbish. What absolute errant rubbish.

Who the hell do you think you are? I've stated, quite clearly, already and several times, that I consider the 'fair' tax to be considerably worse a thing, and why, than even the income tax, for which I have exactly no love. Are you really that dense that this is beyond your comprehension? No one's asking you to agree: it's almost always pointless to ask that of a fanatic.

You don't get to demand terms on this board, m'friend; I really don't believe that you have that imprimateur.

I'd rather have neither the 'fair' tax nor the income tax, thank you very much, and a different scheme entirely is my preference, but you'll notice (if you're capable of noticing) that I don't tout it here.

[SAJ]

No disrespect, but that is not so. The 16th Amendment was passed by the Regress in 1909 and ratified (although there's some argument as to whether it was properly ratified) in February 1913 under the Taft administration.

The Regress, of course, wasted no time in implementing an income tax, and in 1913 decreed it to be, net of ''deductions'' and ''exemptions'', just 1 per cent on roughly 1.2% of the population.

The Regress did -- equally of course -- raise the income tax in both 1915 and 1916 (an election year, wow -- they must have had more guts back then!) perhaps in anticipation of a US entry into WW I, and notwithstanding Wilson's campaign theme that ''he kept us out of war''.

Any collegiate history of the US written prior to about 1970 will name all the relevant dates and events for you, and doubtless provide a lot of additional perspective.

Good hunting, and FReegards!

[Smokin' Joe]

Consumption taxes were favored by our founding fathers and produced most of our free Republic’s income for much of its existence.

Yes, they did, but the taxes were on imported goods in the form of tarrifs.

[Smokin' Joe]

1) The Federal Reserve have no control over tax policy, period. To mention them in a tax discussion is the most crimson of red herrings.

Actually, SAJ, if the interest charged on a loan is a taxable service fee, which I have read it would be if the item purchased is new, then the Fed's rate setting would amount to setting the rate of interest on the loan indirectly, and would affect the amount of tax paid on any purchase made on credit.

Needless to say, the big ticket item market would be bit twice, once on the principle and once on the interest, which the Fed controls by controlling the prime rate.

Near as I can figure, anyway. Tough to tell from the smoke and mirrors.

[lewislynn]

Well aren’t we just full of ourselves?

[SAJ]

Joe, I believe you're spot on; any actual influence the Fed have is derivative, and certainly does not come from statute.

However, who the devil knows the whole score, eh? The 'fair' taxers are, presumably deliberately, keeping lots and lots of detail either unspoken or in the dark.

Drill the Bakken for all it's worth, m'friend. G-d knows we need SOME bloody production in this nation!

Best to you, as ever.

[Smokin' Joe]

Answer me this. By definition an uncirculated coin is unused. Ditto for a proof coin. Both are considered the higher gradings of collectible coins, often gold or silver. Since they are by definition unused, will they be taxed every time they are sold?

If that legal tender currency exchange, currently some $800+ Federal Reserve currency dollars for a fifty dollar United States Mint Legal Tender 1 ounce gold coin, is taxed, what of exchanges for Canadian dollars, Yen, or whatever, will those suffer a "fair" tax as well?

[lewislynn]

And you still refuse to answer the question about what happens if business taxes increase?

That wasn't the question. The question was too idiotic to consider. Like what did I think would happen to prices if corporate taxes were doubled (70%?) or tripled (105%?)...see how stupid your question is? And I'm supposed to take you and everything else you come up with serious?

[lewislynn]

That sure sounds like way more than enough to pay for an upgrade to the state of Texas' computer system that would be necessary. Since they already collect sales taxes from exactly the same sources, it's a mear change in precentage, not in scope.

Meanwhile, we would be able to close down IRS collection and processing offices from Boston to San Diego, have nice going away parties for departing H & R Block employees, and make April 15 just another day.

You didn't read or understand a word that was written.

I don't see a problem there.

I'm not surprised.