How the FairTax Will Renew America (FairTax Thread #3 -Health Care)

We must replace the income tax with a national retail sales tax (NRST), also known as the FairTax. This can be accomplished by passing the Fair Tax Act of 2003, known in the House as HR 25 and in the Senate as S 1493. The FairTax would replace all income and payroll taxes for both individuals and businesses with a tax-inclusive 23% NRST. Only goods and services purchased at the retail level would be taxed, while all goods and services purchased by businesses would not be. Because taxes will only be collected at the sales counter, there will no longer be any capital gains taxes on savings and investment. In order to ensure that we don’t end up with an income tax and a NRST, we must also repeal the 16th Amendment.

The US health care system is the most inefficient in the industrialized world, spending over 15% of GDP on it, compared with only half of that (7.4%) in Japan. That’s over $5440 for every American! While we spend so much, we receive so little: the Japanese life expectancy is 4 years longer (80.2) and their infant mortality rate is 2½ points lower. However, there are many causes to our inefficient system, ranging from a lack of competition, to high insurance costs, to the poor application of the information technology revolution in the field of medicine. Like many of our nation’s problems the answer lies in scrapping the income tax.

After implementation of the FairTax, all forms of corporate welfare will be eliminated; corporations will no longer receive tax breaks for giving employees health insurance. As a result, companies can either negotiate with healthcare providers for a lower price, let employees pay for their own health insurance, or provide nothing. Although some would keep their current benefits system, most would decide to give their employees extra money in their paycheck and let them pick their own health care plan. It is highly unlikely that companies currently offering benefits would choose to do neither. Disgruntled employees would either reduce productivity or quit and cost a lot to replace.

The new system would be consumer-driven, with cost-conscious consumers making their own decisions for their own well-being. Just like employers have moved from the unaffordable “defined pension plan” to the affordable 401(k), so too will employers soon shift the burden of choice to their employee.

Here’s one likely scenario: Company (A) has 1000 employees. It costs $500/mo. for each employee’s health insurance. Under the current system, the company writes off $6M on its taxes each year for providing health insurance to its workers. As a result, the company saves $2M in taxes a year (at a 33.33% tax rate) by deducting the health coverage from their taxes. Over the past few decades, employees have used this tax break to pass on potential higher wage to their employees in the form of bigger health care plans.

Under the FairTax, Company (A) would no longer receive a $2M tax break. As a result, the company can either spend an additional $2M a year on health insurance or pass on the remaining sum, $4M, onto its employees at a rate of $333/mo. per employee. This is the most likely option because it’s the cheapest for the company. The employee now has $333 to go and find health coverage in the open market. Of course, they could always provide no coverage but that would be like giving your entire company a pay cut, and many states even have laws against such practices. The employee now has $333 to go and find health coverage in the open market. Insurance carriers will compete for his business driving down prices while allowing the employee to choose the plan that works best for him and his family. Future wage increases would show up in their paychecks, not in the form of bigger health care plans.

Under the current system, the price of goods and services are inflated 20-30% due to imbedded taxes. After implementation of the FairTax, this would go away. With a drop in price of 20-30%, US drug makers would be able to sell a lot more drugs overseas (the drop in prices would essentially be replaced by the FairTax on drugs sold in the US). There is strong evidence that US drug makers are supplementing depressed profits overseas with higher drug costs domestically. This is due largely to hefty price controls imposed by socialized healthcare systems overseas and America’s brutal corporate tax rate on American exporters (the US is the only nation that taxes profits made overseas as well as domestically). Bottom Line: increased profits overseas will probably cause prices at home to drop.

There is very little cost awareness among insured consumers of health care services. If the cost of consuming a good is relatively low, consumers will generally consume more of them! This is especially true if a consumer gains little financially from minimizing their consumption. This is precisely the case in the healthcare industry, and it should be fixed by making American consumers, already cost-conscious in other facets of life, become cost-conscious about healthcare costs. This can only be done by making consumers pick their own healthcare plans.

Americans should choose the policy that best fits them. Some individuals might decide to purchase high deductible policies, minimize their use of health care, or countless other decisions. Introducing more aggressive price competition to the health care marketplace will lower prices and give consumers more “bang for their buck”. Eliminating employer motives to give employees a “cookie cutter” health plan by eliminating the tax advantage of doing so will go a long way towards opening the market up to competition.

This is no different that the dreaded VAT (value added tax) that the UK uses

A VAT taxes business purchases, thus hiding the tax from the view of the electorate. A NRST only taxes at the retail level, is clearly itemized on the bill in front of the eyes of every voter. The key is visibility my friend.

Definition [ http://www.encyclopedia.com/articles/13330.html ]:

value-added tax
levy imposed on businesses at all levels of production of a good or service, and based on the increase in price, or value, added to the good or service by each level. Because all stages of a value-added tax are ultimately passed on to the consumer in the form of higher prices, it has been described as a hidden sales tax. Originally introduced in France (1954), it is now used by most W European countries.

The business side of the current income/payroll tax structure now in place is a subtraction method VAT, in that it is a levy imposed on businesses at all levels of production, it is passed on to the consumer hidden in the price of goods and services(on average 20-25% of the price of all goods and services), lower wages, lower returns on investment for investors, and higher interest rates(as much a 25% greater than they would be under the NRST).

OTOH; The NRST is a single stage(Retail), single rate, visible to the consumer tax, on the "retail" sale of new(untaxed) goods and service. It is not a VAT, expressly paid by the consumer not the business and is completely visible to the consumer by a receipt mandated by the law. The NRST does not tax purchases made for investment or business purposes.

Purpose of the NRST is to replace all Federal income/payroll taxes and gift/estate taxes with a single tax levied on all new goods and service once and only once at the retail level paid by the final consumer(the purchaser) of those goods or services. Goods that have been previously taxed under the NRST (i.e. used) are not taxed on resale.

The NRST is a specific remedy and replacement for the current VAT we now pay in the form of inflation and lower income(i.e. the corporate income/payroll tax). The NRST repeals over 95% of all Federal taxes currently in place and replaces them with one simple, easy to administer and understand, Retail Sales Tax.

...as with all forms of taxation it should be avoided like the plague...

Your real issue it appears.

Unfortunately not a very likely scenario to ever happen.

Constitution for the United States of America:

Article VI: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."

Article I Section 8: "The Congress shall have power to lay and collect taxes, duties, imposts and excises,
to pay the debts and provide for the common defense and general welfare of the United States;
but all duties, imposts and excises shall be uniform throughout the United States; "

Article I Section 8: "To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof."

Hamilton, Federalist #31:

"A government ought to contain in itself every power requisite to the full accomplishment of the objects committed to its care, and to the complete execution of the trusts for which it is responsible, free from every other control but a regard to the public good and to the sense of the people."
"As revenue is the essential engine by which the means of answering the national exigencies must be procured, the power of procuring that article in its full extent must necessarily be comprehended in that of providing for those exigencies."

Federalist #12:

"A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land."

James Madison, Elliots Debates Vol 3 p128:

Mr. Chairman, in considering this great subject, I trust we shall find that part which gives the general government the power of laying and collecting taxes indispensable, and essential to the existence of any efficient or well-organized system of government: if we consult reason, and be ruled by its dictates, we shall find its justification there: if we review the experience we hav had or contemplate the history of nations, here we find ample reasons to prove its expediency. There is little reason to depend for necessary supplies on a body which is fully possed of the power of witholding them.

Come on folks use your heads once passed this will escalate and be used for everything and anything

Unlike the current system of course:

"A hand from Washington will be stretched out and placed upon every man's business; the eye of the federal inspector will be in every man's counting house....The law will of necessity have inquisical features, it will provide penalties, it will create complicated machinery. Under it men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the tax payer. An army of federal inspectors, spies, and detectives will descend upon the state."
-- Virginian House Speaker Richard E. Byrd, 1910, predicting the consequences of an income tax.

Taxes & Government Spending:

"The income tax in effect makes us vassals to the government – the politicians decide how much income we can keep. No mere “reform” of this slave tax, such as flattening the rate, can correct its fundamental denial of control over our own money. Only the abolition of the income tax itself will restore the basic American principle that our income is both our own money and our own private business - not the government's."

"Replacing the income tax with a national sales tax would rejuvenate independence and responsibility in our citizens. True economic liberty and moral revival go hand in hand."

"A national sales tax would also put the American citizen back in control of national fiscal policy. The best way to curtail government spending is to cut taxes, because they can’t spend what they don’t get. But with a sales tax, we could deny funds to a spendthrift government – and give ourselves a tax cut – whenever we make the private choice to alter our spending and saving habits."

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