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.)

[Your Nightmare]

It seems to me that a NRST can only be successful if the theory of a "25% hidden tax" cost is reality. Are you basing your belief in the "25% hidden taxes" theory on this one paper by Jorgenson? Has there been any other research done? Is there a consensus or have opposing views been published?

Even so, isn't it a pretty drastic change to trust to a few professors sitting in their offices dreaming "what ifs'?

[phil_will1]

"Nobody pays that mythical extra 15-20% of total costs that you need for your argument about compliance costs."

Balrog is correct if you count only the clearly identified tax costs at any single level in the production chain. That analysis, however, ignores the fact that, by the time a product gets to the end user, tax costs themselves and compliance costs have been embedded in each layer up the supply chain. I have worked on spreadsheet models that show that you can conservatively get to the higher end of the range quoted here (25 - 30%)by going 5 - 6 levels deep in the supply chain. Of course, many manufactured products (such as automobiles) go quite a bit deeper than that.

[phil_will1]

"What is the burden of taxes for a corporation that isn't making a profit and therefore doesn't pay income tax or gets a tax credit?"

I will give you a simple example. A couple of years ago, I did some consulting for a manufacturing company in the southeast. They are a subsidiary of a British firm, just getting established in the US market. Their penetration of the US market was still embryonic and their plant (which was beautiful and almost new) was operating at less than 25% capacity. For the prior tax year (which was a calendar year), they showed a loss of app. $2.3MM. As I was analyzing their books, I was astounded to find that they had paid one of the Big 5 accounting firms $500K for tax planning services. IOW, absent their tax expenditures, their loss would have been $1.8MM.

I am not suggesting that they were typical, but the notion that companies must be profitable to expend resources on our tax system is clearly uninformed.

[Taxman]

Check Geezer's comments -- you just might be interested in CM #2.

[kevkrom]

From Americans for Fair taxation (AFFT):

Americans for Fair Taxation began primarily as a research effort committed to seeking possible remedies to the current convoluted and unfair tax system. Concerned citizens banded together and commissioned various studies looking at a replacement or a restructuring of the current code. A diversity of Americans was then cross-sampled through extensive focus group studies to find out what Americans wanted from their tax system. It was determined through these exhaustive studies that the only fair way to tax Americans was via a consumption tax. The FairTax plan evolved as a way of meeting all Americans needs in the most reasonable and fair way possible.

A sampling of the founding research participants can be found below.

http://www.harvard.edu/
http://www.heritage.org/
http://www.mit.edu/
http://www.nber.org/
http://www.io.com/~depr/
http://www.stanford.edu/group/decisions/
http://www.bu.edu/
http://www.cato.org/
Policy paper link: http://cato.org/pubs/pas/pa-272.html

It's not just based on a single economist, but a rather broad base of respected institutions. I have yet to see an opposition paper that claims that the 20-25% hidden tax isn't correct. All of the AFFT position papers are heavily footnoted with links to the relevant research.

[phil_will1]

"And you know I'm right that this isn't going to happen. So,it's just a debating society. have fun with it, but don't take yourself seriously. Too many people would be fanatically opposed to it if they ever thought it would see the light of day. A serious proposal that had a real chance of passage would be met with a cacophony from every direction, not the least of which are the people themselves, who have been brain washed into class warfare."

The outlook is quite a bit brighter than you care to admit. We have found that when we poll Americans unfamiliar with the proposal and ask how they feel about substituting a sales tax for the income tax, the idea does not get good marks. However, when these people have had the plan explained to them and have a basic understanding of how it would work, the majority are in favor. We are seeing more and more candidates running on the issue this year. For example, there is a US senate candidate in Illinois and several House candidates in Texas who are making this a major issue in their campaigns. Here in Ga, we have all 8 Republican House members and both US senators signed onto the bill. The 3 leading candidates for Sen. Zell Miller's seat are trying to convince Georgia voters that they can do a better job promoting this in the senate than their adversaries. Georgia voters understand the proposal more than any other state in the country, largely due to the efforts of Rep. John Linder and Neal Boortz. I visited with 3 moderate House Dems and all 3 were open and willing to consider supporting it. The 2 far left memebrs of Georgia's Dem House delegation (Lewis and Majette) won't even talk to us. I think these kinds of results can be duplicated around the country, especially once we start running mass media (which has always been in the plan).

Let's look at the alternative. You seem to want a continuation of the current system and to be content with whatever "tweaks" you can get from congress. That is precisely the strategy that has given us the 46,000 page mess we have today. The system isn't just bad now - it is growing like a cancer and gets worse with each passing year. In 1976, when Jimmy Carter was running for President, he referred to the Internal Revenue Code as a "disgrace". The entire system at that time was app. 23,000 pps. It passed the 46,000 page mark a couple of years ago, meaning that it is doubling every 25 years. At the rate we are going, we will have a 92,000 page system in 25 years and a 184,000 page system in 50 years. Does anyone believe that this system can grow to those levels without collapsing of its own enormous weight? Does anyone believe that there is any way to slow down the enormous growth in complexity and cost with enacting Fundamental Tax Reform?

I am therefore of the opinion that it isn't IF we enact FTR, but WHEN. Will we as a country have the vision and foresight to change course before we have a major crisis with our tax system or will we do what we did with respect to the escalation in terrorist attacks on us - wait until we have a 9/11?

[ancient_geezer]

It seems to me that a NRST can only be successful if the theory of a "25% hidden tax" cost is reality.

LOL, you don't think federal government cost's?

Lets see,

taxes are paid on wages three times, all three have to be covered by sales revenues paying those wages.

taxes are paid on profits twice, those net earnings and the taxes paid have to be covered by sales revenues generating those profits

taxes are likewise embedded in cost of all purchases for raw goods and service in creating products for sale, those cost must also be covered by sales revenues.

Every dollar of tax the government receives and the costs of compling with those taxes are traceable to sales revenues.

20-25% is the low value of price is the low end of the spectum of the proportion of how the income & payroll taxes and their imposed costs are built into the price of goods and services.

Secondly the NRST is a sucess if just in removing government intrusion out of the individual financial life.

Or maybe you like having uncle oversee your family finances:

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

[Your Nightmare]

Nice list, but can you point me to another published paper that agrees with this 25% hidden tax theory?

[Your Nightmare]

Secondly the NRST is a sucess if just in removing government intrusion out of the individual financial life.

And you think having the federal government taxing everything I buy is removing government intrusion from our individual financial lives?

[ancient_geezer]

Yes, because they are no longer sitting on my doorstep, looking into my personal financial files.

[ancient_geezer]

but can you point me to another published paper that agrees with this 25% hidden tax theory?

One cite is

D. Jorgenson, "The Economic Impact of the FairTax" (a report to Americans for Fair Taxation) (Nov. 25, 1996). Replacing the Federal Income Tax, The Economic Impact of Taxing Consumption: Hearings Before the House Committee on Ways and Means (Vol. II), 104th Cong., 2d Sess., (statement of Dale Jorgenson, Ph.D., Chairman Harvard University, Department of Economics on March 27, 1996, at p. 105) (reprinted in Joint Economic Committee, Roundtable Discussion on Tax Reform and Economic Growth, 104th Cong., 1st Sess. 1996 at. p. 79).

another:

Economic Impact of Fundamental Tax Reform
Jorgenson & Wilcoxen 1996 revised 1999
http://www.economics.harvard.edu/faculty/jorgenson/papers/baker.pdf

Page 26.

9. Since producers capital and workers would would no longer pay taxes on profits or other forms of income from no longer pay taxes on wages, prices received by producers under the Sales Tax, shown in Figure 13, would fall by an average of twenty percent in 1996. Figure 14 shows that prices received by producers would fall by an average of twenty-five percent by 2020. The impact of the Flat Tax on prices received by producers is much less dramatic. Prices decline in the range of six to eight percent for most industries in 1996 and five to seven percent by 2020.

Based on a 15% 1996 rising to 21% in 2020 Retail Sales tax with prepaid consumption tax to povertylevel

[Bigun]

Check Geezer's comments -- you just might be interested in CM #2.

Oh I've seen it and he said it so wonderfully well that he left little room for me to add anything to it!

Why can't others see what's been done to them? Why can't they see that this fight isn't about anything other than F R E E D O M vs S L A V E R Y?

[ancient_geezer]

And another paper and federal statistic cite within it as well.

Another from IPI, including source references to total tax of 54% of annual personal consumption. Knowing that $2 are collected in federal taxes for every $1 collected state & local, that works out to be 36% embedded federal taxes.

Hmmm, a googling we do go.

http://www.ipi.org/ipi/IPIPublications.nsf/PublicationLookupFullText/A9A7AA39F78128BB86256AB700627702

It’s easy to see why: the total U.S. tax burden is equal to 56 percent of annual personal consumption spending. ⁴

4. Personal consumption spending from Bureau of Economic Analysis National Income and Product Accounts; Total tax burden from U.S. Census Bureau, Statistical Abstract of the United States: 1999 (119^th Edition) Washington, DC, 1999.

[Taxman]

I have no idea, Bigun.

I am reminded that there are four types of people:

1. Those that make things happen.
2. Those that watch things happen.
3. Those that wonder what happened.
4. Those that don't know anything happened.

I must add one more category:

5. Those that don't want anything to happen.

I choose of my own FRee Will to associate myself with people who make things happen -- in the political sense, those who work to take our country back FRom the likes of Hanoi John Effing Kerry and his LIEberal/Socialist/Marxist Bastard/Bitch playmates.

Which brings to mind a sixth category:

6. Those that want to destroy the US Constitution.

We will prevail, despite the best efforts of the bozos in groups 2-6!

[Your Nightmare]

Which is it? 36% or 25%?

Or maybe it's 12%. Could be 7.543%.

The truth is nobody knows. Some economist sets up a computer model and comes up with some number and it's about as accurate as me saying it's going to snow on October 10th.

[Your Nightmare]

You forgot number 7. Those that screw things up.

[Protagoras]

It's a good thing the Founding Fathers didn't have an attitude like yours. "Oh, it's just a pipe dream that we could ever break free of England. Let's just be good citizens and pay those tea and stamp taxes. Who knows what kind of mess we'd get into with independence?"

Ahhh, righteous indignation. Amazingly childish rant for someone so above it all. LOL

In case you can't read anything but your cut and paste shaman predictions I'll give you another go at it. Reread my comments for context. Then if you have half a brain you will understand what I was talking about, which BTW, wasn't to you.

I choose to work on things which are just as important but which can be achieved. You are mentally masturbating.

[Fledermaus]

I've read the bill. Again, it's a Utopia without any basis in reality. And it doesn't answer all questions.

You can argue the case all you want and as I've pointed out the same could be made for all the others ideas if they too are seen as perfect.

This thing wouldn't get out of committee in Congress. Ever.

As to the Consumption tax...by that term it's defined as income less allowance less savings,etc. and thus the theory is what is taxable was consumed. Save more, pay less tax, etc.

Again, as to length of code, just add up all the individual state sales tax codes or just look at the larger codes. I don't trust "guarantees" when it comes to any policy going through the sausage grinder of D.C.

It's safe to say I can't change your mind and you can't change mine.

But I appreciated the debate.

[Fledermaus]

No, my statement stands. I didn't say income WAS easily defined, I said it was MORE easily defined.

And I don't think the term "sales tax" will stay easily defined also once they mess with it. The idea that once passed, which isn't possible in the form that everyone keeps telling me to read which leaves lots of questions unanswered, it will be tweaked. That's what they do.

So we disagree. I'm never going to change my mind and you aren't either. Good luck.

[Fledermaus]

States will likely want to administer NRST collection within their own borders

WHOA! Like that would ever happen. Federal tax, federal collections. And eventually, another IRS.

They are politicians, they will change it, tweak it, change definitions of words, demagogue it, play politics with it, raise money from it, run elections on it.

Admitted, sounds good in practice but so does Communism.

Oh, and thanks for the heads up on the Fam Allowance...that's pure libertarian thinking...based on family size only. I like it. But they liberals and "progressives" would NEVER let that thinking past the Senate. And I don't see a GOP Senate with 60 solid members soon.