Congress Must Pass the Fair Tax Act

CNSNews.com ^ | February 27, 2004 | Mac Collins (R-GA)

[esarlls3]

Congress Must Pass the Fair Tax Act
By U.S. Rep. Mac Collins
CNSNews.com Commentary
February 27, 2004

Past Congresses have moved in the wrong direction by making our tax laws more complex and expensive for business and individuals to comply with. To keep our economy growing, Congress needs to take action now.

My colleague, Georgia Republican Congressman John Linder, has sponsored the "Fair Tax Act" (H.R. 25), a national retail sales tax on new goods and services. It would replace all individual and corporate income taxes, payroll taxes as well as capital gains taxes, estate taxes and gift taxes.

The Fair Tax replaces the way we are currently taxed, which is based on our annual income, with a tax on goods and services. The Fair Tax, basically, is a voluntary "consumption" tax. The more you buy, the more you pay in taxes. The less you buy, the less you pay in taxes.

The federal government will continue to be fully funded, including Social Security and Medicare.

The Fair Tax will reduce the costs of goods and services by 20 to 30 percent. It will allow workers to keep 100 percent of their paycheck, pension and Social Security payments with the exception being state or local withholding

The Gross Domestic Product will increase by almost 10.5 percent in the first year after its enactment because real wages would increase and tax compliance costs for business would decrease by 90 percent.

The fair tax would also be good news for investors. Real investment will initially increase by 76 percent relative to investments that would be made under our present tax laws. While this increase will gradually decline, it remains 15 percent higher than under the existing tax structure.

American exports will increase by 26 percent initially and would remain more than 13 percent above present levels under the current tax system.

Studies of the Fair Tax have shown that many U.S. companies will choose expansion here in the United States versus abroad, and in turn the United States will become more attractive to many foreign owned companies looking for expansion possibilities.

President Bush, during his State of the Union address in January, said the economy is turning around because the American people are using their money far better than government would have. The Republican majority in Congress was right to return it to the American people and not keep it in Washington.

A fresh and a fairer approach to a Federal tax system is needed. Therefore, it is time for Congress to pass the Fair Tax (H.R. 25).

As a cosponsor of the Fair Tax Act, I have asked Chairman Thomas of the Ways and Means Committee to hold hearings on this vital legislation. I am hoping those hearings will get under way in the near future.

(Congressman Mac Collins is a Republican representing Georgia's 8th Congressional District. He serves on the House Ways and Means Committee and the House Select Committee on Intelligence.)

[ovrtaxt]

Call, write and yell at your congressman. It worked for me. Eventually, the number of politicians in favor of it will reach critical mass.

[lewislynn]

Easy. Market competition. The plumber's competitors also get a break from the IRS. They can afford to cut prices to expand.

There is no break. You'll spend the money someday and when you do you'll pay taxes. If you cut your prices equal to the repealed income tax you've just royally screwed yourself for when you do spend it.

Price isn't the only way to compete, just ask the Big Three Automakers.

I'm a General Contractor for over 20yrs, I know how to compete.

[lewislynn]

Wow! finally someone who can think.

[lewislynn]

Rep. Bill Archer, Chairman, House Ways and Means Committee 106th Congress:

Oh yea, Bill ("pull the tax code out by it's roots") Archer who added 800 pages to the tax code then went to work for PriceWaterhouse when he "retired" on the government dole.

[lewislynn]

Problem is when all business's in the market share in the same reductions, it becomes follow the leader to maintain market share.

That's because they've listened to people like you who don't know what competition is, that price isn't competition, competing for price is a race to the bottom for business...just ask the US automakers.

If an individual business owner reduces their price equal to the repealed tax, what happens when they go to spend their imagined gain...they'll come up short equal the new sales tax.

No one in business with an ounce of brains will lower their price equal to the repealed tax or they'll be working for nothing.

I didn't miss the math that your paid economist did. I want to see YOUR math using any scenario you'd like to prove YOUR point.

The employer half of FICA is paid on the employee's behalf. If your sales tax is enacted the sales tax includes SS. The employee/consumer now saddled with the entire load of the Federal tax would be entitled to receive the employer contribution....whether you want to admit it or not.

For most businesses the cost of compliance is the cost of TuboTax..about 60 bucks. Other than that it's normal bookeeping.

[esarlls3]

Oops, try again with a direct link to it:

FairTaxSponsorsChart.html

[Fledermaus]

You'd be surprised how fast a sales tax compliance department would grow. Especially with every single change. They'll need lots and lots of auditors too.

I've been sales tax audited many times. It's routine in some states to randomly check. I've had more than one conversation about what is or isn't taxable with a state auditor. I thought they were supposed to know. They were just as confused with the wording of some laws as I was.

For example, should we charge an occupancy tax on banquet rental rooms in a hotel? Sure said one auditor, they are occupied. No said another, the occupancy tax laws were directed only at sleeping rooms. Are you sure? Yes...no...maybe! They spent three weeks discussing this to the point I called the Hotel Assoc. to let their people know the state didn't know and since no hotel charged the tax for banquet rooms, we didn't want to have to start.

And I've been audited and worked with the IRS. I saw no difference in the two.

If you think a national sales tax compliance bureaucracy will somehow be cheaper and more efficient than the current IRS you'd be mistaken based on my experience.

Check out your state's sales tax office and see what their budget is and how much staff they have.

[Fledermaus]

I could give you every argument the left would use against that..."food isn't a choice", "medicine isn't a choice", etc.

And you'd need some mass product boycott movement to effect tax collections. Sure, the individual can easily change his tax based on expenditures. But given the sales tax rates for most states along with a federal tax would be close to 25% or more. So small individual decisions wouldn't mean much on phones, cable, computers, prepared food, etc. That turns into just maximizing disposable income after the sales tax which is no different with an income tax. Those same changes in expenditures will save the same amount of money overall.

Now, a consumption tax based on income level less savings and investments and personal deductions only with a flat rate sounds easier, fairer, less complex and really would need much of a bureau to run the operation. It could be probably be handled by the banks and other financial institutions.

But since it's Congress, they'd screw that up also.

[Fledermaus]

Great goals but too utopian to happen or pass.

Get rid of excise taxes? Good luck. So many cities, counties, and states have their hands in those pockets it wouldn't make much of a price difference to just remove the federal ones.

And all the left has to say is "the Fair Tax Act eliminated Social Security" and it's a loser. Doesn't have to be true. I agree in a perfect world it would force us to treat FICA taxes not as a "trust fund" but just a promised expenditure to current beneficiaries and paid for by general funds. The debate then could shift to whether or not the program is worthy for the cost. But then that should be debated already regardless of the tax argument and no one will touch the issue.

And your explanation of the idea (One of the beauties of the FairTax is applying the tax to everything, no exceptions, and using the Family Consumption Allowance to eliminate the regressive nature of an uncompensated sales tax) and it's benefits sounds very similar to the Consumption tax version based on income less personal deductions (consumption allowance under the other plan) less savings and investment and taxed at a flat rate.

The Consumption tax has no opportunity to tax everything, no exceptions (which would never pass any Congress until we are fighting the Klingons) because it's a one time tax on a yearly calculation.

And how is your Family Consumption Allowance going to be calculated? Oh, it would have to be by income and number in the family. The exact same thing under the Consumption tax and the basis for our income tax. And you think Congress won't fight over those tables? You are right, forget the earned income tax credit, we'll get a "Lower Income Family Allowance Credit". And if they can't get the sales tax rates to be "progressive", they'll use those Allowance tables to move brackets of income to determine who gets what to offset, not eliminate, the regressive nature.

They'll destroy regressivness by putting back in our current redistribution system. Low income people will have Allowances larger then their incomes (sort of like Milton Friedman's negative income tax - but that system was designed to replace all welfare, not add to it)and that will be paid for by lower allowances, if any, on upper income households. Income redistribution.

They all sound good if you could have 100% purity of purpose. Our original income tax system started out that way too. And those that bring up how we had 140 years taxes mostly from tarrifs and did okay ignore our far different global economy. Besides, World War II could never have been paid for without an income tax. At the time, I think trade was not going well with some countries! lol

[Fledermaus]

Regardless of expenditures, it's regressive when compared to the percentage of disposable income.

[Fledermaus]

The flat tax, if taken literally, encompasses the Milton Friedman concept of a negative income tax. So yes, I'd get rid of the EITC only because the flat tax (or consumption tax based on income less personal allowances less savings/investments) could include the concept. But the negative income tax was designed to replace welfare.

And the EITC is one of the weirdest tax ideas...hard to compute, file for, is confusing and horribly abused.

[Fledermaus]

Oh, I forgot to mention...that word "services" is one that is hotly contested in sales tax codes in most states.

Dental services? Doctor services? Plastic surgery services?

Again, income is more easily defined. I really don't want politicians debating every single product or service. And they would.

[hosepipe]

In our dreams....

[ancient_geezer]

"If an individual business owner reduces their price equal to the repealed tax, what happens when they go to spend their imagined gain"

The tax is revenue neutral lewislynn, it just shifts the point of collection from throughout the economy to the retail sales register.

If a business owner earns a wage in his company as an employee, (presuming said owner works for his company), such an owner has the same benefit as any other employee through aquiring control over his full gross pay.

Net earnings to the business, and gross wage to employees, remain constant. Compitition operating through supply demand gives rise to decrease in price out of competition. After NRST goes into effect (shelfprice + NRST) = current price. Any earnings advantage goes to the employee in aquiring control over his full gross wage, with the repeal of withholding and FICA.

The primary advantages to domestic business arises out of increased available dollars to the consumer for consumption spending, and an enhanced competitive position with regard to foreign products. Business carves its advance out of enhanced economic growth.

A business owner aquires opportunity to grow in a domestic product friendly tax environment.

No one in business with an ounce of brains will lower their price equal to the repealed tax or they'll be working for nothing.

Then that business is working for nothing now. After NRST net earnings to business and wages to employees remain constant with implementation of the NRST.

I didn't miss the math that your paid economist did. I want to see YOUR math using any scenario you'd like to prove YOUR point.

I did, through the comparative calculations between two economists, Jorgenson and Robbins. If you want to see the math of the source, go look it up lewislynn. I'll accept their studies over anything that can be shown in these brief replies, and especially over anything you come up with.

The employer half of FICA is paid on the employee's behalf.

LOL, you believe what politicians tell you lewislynn?

HELVERING v. DAVIS, 301 U.S. 619 (1937)

• Title VIII(Social Security Act), as we have said, lays two different types of tax, an 'income tax on employees,' and 'an excise tax on employers.' The income tax on employees is measured by wages paid during the calendar year. Section 801 [26 USC 3101]. The excise tax on the employer [26 USC 3111] is to be paid 'with respect to having individuals in his employ,' and, like the tax on employees, is measured by wages.

You are a fool if you do.

For most businesses the cost of compliance is the cost of TuboTax..about 60 bucks.

That most certainly does not include the full costs lewislynn:

OUR COSTLY INCOME-TAX SYSTEM

Every time Washington collects a dollar in tax revenues, taxpayers shell out that dollar plus another 65 cents. Why is that? It's not that the IRS is inefficient.

That agency's expenses eat up less than a penny of each dollar it raises. The 65 cents is what it costs taxpayers -- businesses and individuals -- to pony up each dollar. Compliance costs, which come to 24 cents, include the expense of keeping records, staying current with the tax code, and filling out the forms. Enforcement costs, close to 2 cents, include tax-???payers' expense for audits and litigation. We spend 3 cents on tax evasion and avoidance. However, the biggest expense item, at 33 cents, is economic disincentive. "By taking away the fruits of labor and capital," says political economist James L. Payne in his book Costly Returns, "the tax system works to discourage working and investing." So the next time Washington announces a, say, $10-billion program, remember that the real cost is that plus 65 cents per dollar -- or $6.5 billion more.

Costs of the Federal Tax System to Taxpayers for Every Dollar of Revenues Collected

Compliance costs	24¢
Enforcement costs	2¢
Disincentive to production	33¢
Disincentive cost of tax uncertainty	2¢
Evasion and avoidance cost	3¢
Government cost	1¢
Total	65¢

Source: Costly Returns, by James L. Payne (ICS Press, San Francisco, 1993).

as well as the fact 80% of dollar volume passes through 20% of the companies out there.

Saying most businesses just don't cut it, lewislynn.

The dollars are concentrated in the few business that are something larger than your single proprietor, cash economy, whatever you can squeak out business where single proprietor takehome equals 100% of gross because they are not "officially" breaking even with even the minimum reporting requirement of individual income tax.

Now I will admit, that kind of business does have a problem competing in an environment where they can no longer use their small size to hide from the tax burdens of the larger businesses they compete with. Yes that "business" is likely to find it tougher going under the NRST. They will have to actually compete for business instead of carving niches in which to hide from the income/payroll tax system.

[ancient_geezer]

And how is your Family Consumption Allowance going to be calculated? Oh, it would have to be by income and number in the family.

Just number in the family fledermaus. Reply #17, Please read the bill, this is getting old.

And you think Congress won't fight over those tables?

LOL, the methodology has been set in concrete by the courts and established law, a side effect of having so many government programs indexed to cost of living and poverty level determination.

The povertylevel is just a fixed (by use and court decisions) basket of consumer goods in one particular index year 1985 IIRC multiplied by CPI.

Increase CPI artificially, SS/Medicare & every welfare program in the world blows up. Bond interest rates go through the ceiling, all kinds of political & economic havoc reigns. That is why the CPI is usually understated and not over stated by the government.

Increase the povertylevel beyond real inflation, The hapless administration gets to explain the sudden increase in number of poverty stricken persons thrown out on the street.

Decrease the poverylevel below its nominal value, liberals start losing constituencies because their welfare dollars are dropping.

[ancient_geezer]

The Consumption tax has no opportunity to tax everything, no exceptions (which would never pass any Congress until we are fighting the Klingons) because it's a one time tax on a yearly calculation.

LOL, do you always make up your arguments out of thin air?

"Retail Sales Tax", is calculated only on the price of retail products, paid when products are purchased. No yearly calculations. Paid once at the cash register on a continued basis. Just like it is done with every state sales tax out there.

Low income people will have Allowances larger then their incomes (sort of like Milton Friedman's negative income tax - but that system was designed to replace all welfare, not add to it)and that will be paid for by lower allowances, if any, on upper income households.

Again read the bill, every household receives a the same amount for each person in it. Income is not a criteria.

They all sound good if you could have 100% purity of purpose. Our original income tax system started out that way too. And those that bring up how we had 140 years taxes mostly from tarrifs and did okay ignore our far different global economy. Besides, World War II could never have been paid for without an income tax.

You may be happy with an Income tax and remaining in perpetual jeopardy with government looking over the shoulder of every citizen. I'm not.

I discussed the importance of abolishing the income tax because of its tendency to form a habit of servility in the souls of a people that accepts it. Servility of soul is bad not only in itself, it is also an open door through which will soon walk the abuses of ambitious government power. Leaders who find themselves with governmental power over a servile people will be quick to conclude that such a people exist to serve them.
Alan Keyes 1999

-- a free people that pays slave taxes to its government is willingly training itself for bondage.
Alan Keyes 1999

It's time to end the income tax in all forms, flat, round square or otherwise.

[ancient_geezer]

Dental services? Doctor services? Plastic surgery services?

All, no exception, no exemptions. Simple straight forward and that is the way the bill reads.

Again, income is more easily defined. I really don't want politicians debating every single product or service. And they would.

ROTFLM ( | ) O

Income tax:

7,000 pages of Code,
50,000 pages of implementing regulations.

NRST

retail sale of all new goods and services

new goods = any product on which the NRST has not been paid.

Read the bill, instead of demogoging.

[Taxman]

Well, Geezer, you have a great discussion going here. 'Bout time some people woke up and took notice!

Seems we have more supporters on the thread than naysayers. And you (and others) have effectively refuted the naysayers arguments, if one can call unsupported claims and wildly speculative prognostications of gloom and doom "arguments."

Though the naysayer's comments are difficult to stomach FRom time to time, they do serve two useful purposes: They bump the thread and they allow other FReepers to become educated about the NRST.

Keep up the great work, all!

[ancient_geezer]

Besides, World War II could never have been paid for without an income tax.

In case you didn't know, the income tax was not implemented to pay for any war, historically it didn't serve to accomplish that for the civil war, they had to inflate the money supply and pay bonds off with devalued currency after they found the income tax to be insufficient at that time.

No there is only one reason to have an income tax and that was clearly described in a 1946 policy paper by FDR's advisor on taxation.

The Individual income tax is for political and social control not revenue collection.

"TAXES FOR REVENUE ARE OBSOLETE
-by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York & advisor to FDR on taxation.
January 1946 issue of "American Affairs"

And in the Manifesto of the Communist Party, by Karl Marx and Frederick Engels, published in 1848. Among their recommendations are these:

The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralize all instruments of production in the hands of the state ... . Of course, in the beginning, this cannot be effected except by means of despotic inroads on the rights of property ... . These measures will, of course, be different in different countries. Nevertheless, in most advanced countries, the following will be pretty generally applicable.

1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.
6. Centralization of the means of communication and transport in he hands of the state.
7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal obligation of all to work. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc.

That is a situation that must end with the repeal of the income tax from the statutes, and the prohibition of its use by Constitutional amendment that future generations will not face the same manner of manipulation and interference in their lives.

[ancient_geezer]

Regardless of expenditures, it's regressive when compared to the percentage of disposable income.

Hmmmm! disposable income = after tax income = savings plus personal consumption expenditure.

Savings rate is approximately 1% according to BEA. And consistent with the economic maxim that consumption rises to the level of available income.

The difference is not worth talking about.

To illustrate the HR25 progressive nature we can examine the tax burden that a family of four will have at various annual income levels (or in this case, annual spending levels).

H.R.25 "The FairTax Act

Remember?