Thomas Wright traveling the state promoting ‘fair tax’ plan

Thomas Wright traveling the state promoting ‘fair tax’ plan 07/21/2004 By Scott Nicholson

Thomas Wright said his idea for a “fair tax” plan was conceived in a friend’s California living room 14 years ago, and now he’s executive director of “Americans for Fair Taxation.”

Wright brought a task force to the Fifth District to explain the non-profit organization’s ideas, which he said had been misrepresented in the district’s Republican primary race.

Candidate Jay Helvey had said candidate Vernon Robinson’s support of a fair or flat tax was a “tax on Social Security,” but Wright said that wasn’t the case.

Wright said the “fair tax” plan is essentially a national sales tax of 23 percent. All legal U.S. residents would also get a monthly rebate based on household size, with the formula the same as that which determines the federal poverty level. The sales tax would apply only to new products, not used products.

Wright said he was unable to mention political action due to the non-profit status, though he said, “Certain Republican candidates are being extremely dishonest in how they’re presenting the proposal. We’re doing this so people on Social Security will know the truth about the proposal. Our organization is not going to stand for panicking these people who live month to month.”

The fair tax bill is currently before Congress and has 55 co-sponsors, including House majority leader Rep. Tom De Lay.

Wright said President George Bush would sign the bill, and the bill has a narrow window of opportunity for support.

He said if the Kerry-Edwards ticket wins, the group would have to start all over and educate the new administration.

While most of the congressional support is Republican at this point, Wright said it has broad support. He said two of the biggest state economies, Texas and Florida, use a sales tax rather than an income tax.

Wright said the bill is notable for the civil liberties it would bring to taxpayers, since the government would no longer need to track them and their incomes. “This makes the Internal Revenue Service go away,” he said.

The national sales tax would be collected by the state’s collection organizations, of which 46 are already in place.

Wright said the Social Security department structure would ensure that households actually had the Social Security numbers on record for rebate purposes.

Since the rebate is given at the first of the month, it’s called a “prebate.”

Wright said the organization spent $22 million coming up with economic models to measure the impact of a fair tax. He predicted it would create an economic boom in the country similar to that in the wake of World War II and would bring manufacturing industries and jobs back to the country and make it more competitive internationally.

He said the plan has a built-in mechanism to prevent tax hikes, because “when government tries to raise the rate too high, revenues fall off.”

Wright said the plan increases individual purchasing power and also “gets the government out of people’s homes, churches and business.”

He said ministers can’t preach politics because of the non-profit status of religious groups, and this plan “makes it go away.”

He said it would also reduce the cost of collecting payroll and other federal taxes.

“When terrorism is threatening our civil liberties, this returns our civil liberties in spades,” he said. “It honestly de-taxes the working poor in America. These are good things.”

As an example, Wright said a couple living on Social Security with a fixed income of $25,944 a year would see their tax burden cut in half.

The organization’s economic models predict a decline from the current tax burden of 22 percent down to 10.3 percent.

The break-even point at which a family of four would end up with the net effect of no taxes would be at $32,316. The arc at which higher-income families would be taxed follows the existing arc on a graph, only Wright said each person’s tax burden is lower because it removes hidden federal taxes that add to the cost of all goods and services. All households with four members having valid Social Security numbers would receive $5,745 a year in prebates.

Not only does the fair tax bill abolish federal income tax, it abolishes payroll, personal gift, estate, capital gains, alternative minimum, Social Security, Medicaid, self-employment and corporate taxes.

Wright said the fairness of the tax was that it taxed on what was spent, not on income. Wright said those who choose to spend above the poverty level will end up paying taxes. He said buying used products also allowed people to save money. “The key factor here is that you decide for yourself how much tax you choose to pay by how you choose to live your life,” he said.

A single person would get a prebate of $2,141 a year, the amount calculated as a “consumption allowance.” “Everybody gets it,” Wright said. “You get it. Bill Gates gets it. It probably means more to you than it does to Bill Gates.”

Wright said the bill would boost the economy not only by relieving tax burden but by boosting available spending money.

The organization supports no exemptions for food and medicine to limit the effect of special-interest lobbyists and believes the wealthy actually spends more on these items than the poor, so it would give the wealthy a disproportionate benefit.

He said the plan also provides money for Social Security reform while not affecting reform itself.

Wright said senior citizens think they’re not paying taxes, but he said they are paying 22 percent to fund the cost of government.

“Washington hides the cost of federal government in the retail products of everything they buy,” he said.

He said the organization isn’t involved in an argument over raising or cutting taxes, since the fair tax bill is designed to be revenue neutral.

He said Social Security tax was the most regressive tax of all, and said more low-income people are audited than the wealthy.

“Is this the way we should treat the working people in America? I don’t think so,” he said.

He said environmentalists should support the bill because it encourages the sale and purchase of used items. When asked why he’d spent over a decade promoting the fair tax plan, Wright said, “It’s the right thing to do for our grandchildren.”

• Scott Nicholson can be contacted at the following: nicholson@wataugademocrat.com

Golly, another article that states a 23 percent sales tax rate and fails to explain that the rate in terms the vast majority of people understand for sales taxes is 29.87%.

If you are paying $23 dollars out of every $100 spent in taxes what is your what is the percentage rate of the tax burden imposed upon you?

The Wrong Camera: The Denominator of the
Tax Incidence Equation.
Dan R. Mastromarco; LLM, Argus Group, Washington D.C.
Tax Analysts Document Number: Doc 1999-32575
Citations: (October 8, 1999)

B. Use a Consistent Size Screen to Portray It.

[118] When considering the rate of a national sales tax, or any tax for that matter, one must always decide which of two distinct means of portraying this rate -- the "tax-inclusive rate" or "tax- exclusive rate" -- best expresses the tax burden. Which one we employ changes absolutely nothing in terms of the taxes that are actually raised or paid by the taxpayer under the taxing regime examined, in the same way that measuring a journey in inches or meters does not change the distance. However, how the rate is presented changes how the relative tax burden is perceived by those who wish to compare the merits of competing tax proposals. Confusion results when we compare alternatives under different measuring scales.

[119] The sales tax is particularly susceptible to this confusion because state sales taxes are normally expressed on a tax- exclusive basis, while income, estate, and payroll taxes, as well as the Flat Tax and other VATs, are normally expressed on a tax- inclusive basis. If we were to express a sales tax rate as a percent of the product price as is done in the states, we would be unfairly overstating the burden of the tax when we compare it to what it is meant to replace at the national level. Or conversely, we would be greatly understating the relative burden of the federal income and payroll taxes for those who don't have time to learn the different measuring systems.

[120] Presentation of a rate of tax on a tax-exclusive basis simply means that the rate of the tax is expressed as the tax paid over a base determined after the tax was already imposed (for example, taxable income under our personal income tax system that is net of the tax). In other words, a tax-exclusive rate would be defined as:

$ tax paid
-------------------------------------------------------------------
($ base on which the tax was imposed)-($ tax paid)

[121] The rate therefore reflects the ratio of taxes paid to what is left in the base, such as net of tax income.

[122] On the other hand, defining the rate of tax on a tax- inclusive basis simply means that the rate of the tax is expressed as the tax paid over the base before the tax has been imposed. In other words, a tax-inclusive rate would be defined as:

$ tax paid
-------------------------------------------------------
$ base on which the tax is to be imposed

[123] Since the base of the tax before the tax is imposed is always more than the base after tax (the denominator is greater), expressing the tax in a tax-exclusive way will always yield a higher rate. In other words, it will express the tax as having a higher burden. /56/

[124] Let us take the following example.

Example: An individual earns $1,000 and pays $200 in taxes
(under either a VAT, income tax, or sales tax) but spends the
remaining $800 on a stereo. Although the taxpayer will pay the
same amount of taxes ($200) out of the same amount of pretaxed
income ($1,000) a question arises as to how the rate should best
be expressed? Is the tax rate 20 percent or 25 percent?

[125] Clearly, one might say that the income or Flat Tax rate is the lower rate, 20 percent, since the taxpayer paid $200 on $1,000 of pretaxed income. That is because the income tax and VATs are normally looked at (unquestionably looked on) on a tax-inclusive basis. However, when we view traditional state sales taxes we might say that the state sales tax rate needed to raise $200 of revenues is 25 percent, even though the sales tax rate raises the same amount of revenue as a 20 percent tax-inclusive income or Flat Tax rate. The taxpayer would be considered to have paid the tax at a 25 percent rate since the taxpayer paid $200 of tax on $800 worth of goods exclusive of tax. That is because the state sales taxes are normally looked on on an after-tax or tax-exclusive basis. To use our formula for tax-exclusive representation:

$ tax paid
--------------------------------------------------------------
(base on which the tax was imposed)-(tax paid)

or,

$200/$800 or, 25 percent.

[126] Which is the correct way of expressing this rate? To the casual observer, it is obvious which tax to prefer. All else being equal, one would prefer a 20 percent rate over a 25 percent rate. But that same person may be surprised to find out that they are saying the same thing, and paying the same tax.

[127] The problem with using a tax-exclusive basis for determining the rate of a national sales tax and a tax-inclusive base to portray the income tax is that it can be very misleading. Let us look at a taxpayer who is at the top marginal rate under each taxing scheme. The tax-inclusive and tax-exclusive rates would be compared as shown in the charts just above and just below.

[128] In the tax-inclusive chart, we see comparisons that we are used to seeing. This chart reflects the maximum marginal rate of the current personal income tax system as 43.3 percent. /57/ Here the sales tax rate is 23 percent and the Flat Tax rate is 32.3 percent, reflecting the combined payroll and Flat Tax burdens. /58/ But the tax-exclusive chart indicates that the income tax with the payroll tax bears a maximum marginal rate that is 75.8 percent of the tax- exclusive base. Even the federal individual income tax alone reflects a maximum marginal tax-exclusive base of 43.3 percent. According to the chart above, the Flat Tax bears a maximum marginal rate of 47.7. The FairTax plan bears a maximum marginal rate of 29.9 percent. In this chart, the taxes paid are calculated as a percentage of what remains after tax.

[129] In making comparisons between alternative taxing systems it is important to ensure therefore that these comparisons are consistent, fair in terms of expectations, and are well explained. Fair comparisons eliminate and do not exacerbate confusion over a relatively critical point as the means of expressing the tax rate. The only means to do so is to ensure that a tax-inclusive rate is compared with a tax-inclusive rate.

Footnotes:

/56/ When calculating the tax-inclusive sales tax base, two algebraically equivalent methods may be used. The tax-exclusive rate may be converted into a tax-inclusive rate by dividing the tax- exclusive rate by one plus the tax-exclusive rate: ti = te / (1+ te). Conversely, a tax-inclusive rate may be converted into a tax- exclusive rate by dividing the tax-inclusive rate by one minus the tax-inclusive rate: te = ti / (1-ti). Alternatively, the tax- inclusive sales tax rate may be calculated by adding the repealed income tax revenue back into the tax base (consumers, after all, would have that money to spend), whereas one would not do so when calculating the tax-exclusive base (consumers would be spending that amount on tax and it would not be appropriation to include it in the calculation of a tax-exclusive base).
/57/ The maximum marginal payroll rate is 15.3 percent, but this rate applies regressively between $0 and $72,600 for 1999. When this rate attaches, it is possible for a tax to apply at a maximum marginal rate of 43.3 percent (28 percent individual income tax rate plus 15.3 percent payroll tax rate).
/58/ While it is beyond the scope of this article, it is important to understand that the Flat Tax rate of 17 percent assumes a substantial reduction in government revenues.

There, in the epicenter of Houston's power elite (please, no ladies before 6 p.m.), three Houston businessmen plotted a populist uprising.

Yep and

"There, in the epicenter of Houston's power elite (please, no ladies before 6 p.m.), three Houston businessmen plotted a populist uprising.
Their goal: Bring down the 85-year-old federal income tax system."

From Thomas Hobbes, Leviathan it is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income.

[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]

"A capitation is more natural to slavery; a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person."
--Thomas Jefferson: copied into his Commonplace Book.

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

Patrick Henry, Virginia Ratifying Convention June 12, 1788:

"the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."

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

You can tell from the protests against the Fair Tax proposal who is able to avoid the indignities of the Income Tax code.

Or for some reason prefer the indignities a heavy progressive or graduated income tax. Masochism perhaps?

Adam Smith, the father of modern economic thought, had a lot to say about taxation in his still great book Wealth of Nations pp. 561-64. Here is what he had to say about bad taxes:

1. A tax was bad that required a large bureaucracy for administration.
2. A tax was bad that "may obstruct the industry of the people, and discouraged them form applying to certain branches which might give maintenance and employment to great multitudes. While it obliges the people to pay, it may thus diminish, or perhaps destroy, some of the funds which might enable them more easily to do so."
3. A tax was bad that encouraged evasion. "The law, contrary all the ordinary principals of justice, first creates the temptation, and then punishes those who yield to it. "Evasion is also bad, says Smith, because it tends to "put an end to the benefits which the community might have received from the employment of their capitals."
4. A tax is bad that put the people through "odious examinations of the tax-gatherers, and exposes them to much unnecessary trouble, vexation, and oppression...It is in one or other of these four different ways that taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign"

The income tax doesn't appear to have missed any of them:

"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.

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