Posted on 08/26/2004 11:05:33 PM PDT by n-tres-ted
Two weeks ago a man stood up at a George Bush campaign appearance in Florida to ask about a piece of legislation known as HR25. Many, including myself, were pleased to hear Bush respond with some positive thoughts about the Fair Tax plan, a movement to replace the federal income tax with a national retail sales tax.
Washington is a city of inertia, and right now the inertia belongs to our present method of funding the operations of our government, the income tax. Politicians will not easily surrender a funding mechanism that lends itself so well to political demagoguery and which can be used to reward political allies and punish enemies.
The Fair Tax plan deserves a thorough public examination and debate. John Kerry seems dedicated to making sure this doesn’t happen. Soon after Bush cited the national retail sales tax as something worthy of further exploration, Kerry stepped forward with the typical class warfare rhetoric of the left. Acting as if he actually knew what was he was talking about (he didn’t), Kerry announced that the Fair Tax would amount to the largest increase in the tax burden on poor and middle income Americans in our history.
John Kerry was wrong. He was either speaking out of ignorance, or he was deliberately lying about the Fair Tax proposal in order to gain a political advantage. A politician lying in order to gain political advantage --- imagine that.
This column is lengthier than the norm, but I promise you that if you will invest the time it takes to read it you will be well on your way to becoming yet another rabid supporter of the Fair Tax plan. You will know that the poor and middle income Americans would be the prime beneficiaries of the proposal. You may even organize your own neighborhood march on Washington to demand that HR25 receive a fair hearing. In the next two minutes I’m going to turn you into a HR25 Fair Tax zealot. Read on:
First … the briefest of overviews: Simply put, HR25 would provide for the repeal of the 16th Amendment (the income tax amendment) and the dismantling of the IRS. All personal and corporate income taxes would end, as would all payroll taxes. There would not be one cent of federal taxes of any nature taken out of your paychecks. No more Social Security taxes. No more Medicare taxes. You earn $2,000 a payday; you get $2,000 a payday. The federal government would be funded through a national sales tax on goods and services sold at the retail level. No taxes on investments. No taxes on savings. You only get taxed on what you spend at the retail level. Store your earnings in a shoebox if you wish. They won’t be taxed.
When originally proposed, calculations showed that the sales tax would have to be in the area of 23%. A complete economic study is now being completed that is expected to bring that total to under 20%. For the purposes of this column, we’ll stick with the 23% figure.
OK … let’s put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation’s poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they’re living paycheck-to-paycheck in the first place, right?
Bear in mind that for the most part those whom we define as “poor” aren’t paying any income tax anyway. In fact, many of them are getting checks from the government; a form of outright income redistribution. The absurdly named Earned Income Tax Credit, for example. How can these people survive going from a no-tax situation to paying a 24% sales tax on all their retail purchases?
The implementation of the Fair Tax would fail in short order if, as the question presupposes, nothing were to change except that all of us would be paying today’s prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But … that’s would be far from the reality under the Fair Tax. Under the Fair Tax the poor won’t only survive, they’ll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.
Let’s begin by considering two realities.
First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For the poor this means an immediate 12 to 15% increase in their earnings.
Second. Don’t forget the 22% in imbedded taxes. These embedded taxes exist in virtually everything poor Americans or any other Americans have to buy. These embedded taxes represent all of the corporate and business income taxes and payroll taxes that the companies involved in the production, manufacture, marketing, distribution and sale of the goods and services must pay in the course of business. As soon as these taxes are gone, and after the competitive forces of the free market work their magic consumers, including the poor, will be paying at least 20% less for virtually everything they buy. This includes such basics as food, clothing, shelter and transportation. Yes... they’ll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you’ll see that the total price paid for consumer goods in terms of real dollars will fall or will remain very nearly the same.
So … just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, amounting to a 12 to 15% pay raise, and when you factor in the Fair Tax and the lower prices, they’re actually end up spending less of their money for a retail purchase than before. What John Kerry calls the greatest increase in the tax burden on the poor in the history of our country is, in reality, their greatest tax reduction.
You need a clearer picture? Pull out your calculator. Let’s say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax at 23% would be $8.07. This brings the total price to $43.17. That’s less than would have paid under today’s tax system. This single mother, whom we’ll consider “poor,” has just received a 12% to 15% increase in her weekly paychecks, and she’s paying less at the grocery story for her basic necessities.
So far, so good. At this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. Here’s the convincer. Brace yourself for the knockout punch.
The Rebate
Under the Fair Tax plan every consumer, rich and poor alike, will receive a check or an electronic credit to their bank account from the federal government every single month equal to the sales tax that person or that family would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government’s published poverty levels for various sized households.
Here’s an example of how the rebate payments would have worked in 2003.
Let’s say you’re a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. If the Fair Tax Act had been law in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have had to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government would have rebated this amount to you in 12 equal monthly installments of $465. What about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest payment would be to a single person with no dependents. That person would have received $172 per month.
Now … bear in mind, this rebate isn’t only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.
OK … let’s add it up for America’s lower income citizens:
1. They get their entire paycheck. 2. Even with the sales tax, and considering the drop in prices, they’ll be paying essentially the same or less for everything they buy. 3. They get a check from the federal government every month to rebate any sales taxes they had to pay on life’s basic necessities.
Are you beginning to see just how far off-base John Kerry was with his intemperate criticisms?
Though most of the poor don’t have what we would call complex tax returns, let’s also include the time these they (all of us, really) will save by not having to keep tax records or file tax returns.
If you’re looking for some reason to oppose the Fair Tax plan, you’re going to have to find a better excuse than its effect on the poor. John Kerry might find it politically expedient to demagogue the issue for votes, but now you know enough to know what he’s up to.
For more comprehensive information on The Fair Tax you can visit http://www.fairtax.org.
Neal Boortz is a lawyer and nationally syndicated radio talk show host.
©2004 Neal Boortz
I would like to see a lot of the other taxes abolished. There is a tax on everything, now-a-days, and the government says they still don't have enough money.
Let me guess....I'm an illegal alien, right ?? Right ?
You're already paying the tax - it's not going to be "in addition to" existing prices. The nrst replaces the taxes you're already paying in prices - but most people don't know they're there.... prices won't change much if at all. That's why dems HATE this idea... makes us all aware of how much we have to feed the beast!
Could someone clarify this for me because I'm not sure I'm getting the premise right. We would pay 23% sales tax on goods? What about those of us in states, like NY who already pay a sales tax of 8.75%. What would be my sales tax on a $20,000 car be? 31.75%? Is this the suggested solution? It stinks paying 8.75%.The actual national retail sale rate in terms people are use to dealing with sales tax in is 29.87%. So your sales tax on that car would be 38.62%!
What is the difference between:
1) "16th made the income tax constitutional,"
and:
2) "it made it constitutional to tax income they way we do it."
Actually it does. Savings are not treated any differently under the nrst with respect to purchasing power. The only difference is that investment income is no longer taxed... your savings will grow faster. There is no reduction in purchasing power because prices will remain stable.
The flat tax won't work for several reasons. First, it keeps the income tax in the law and would not get rid of the IRS. Second, the complexity comes in determining what deductions are permitted, not in the tax rate. If deductions are "simplified" to one size fits all, then businesses will be hurt badly by being unable to deduct reasonable expenses of doing business.
It's just that the included 22% (28% sales tax) has always been invisible. That's the only difference.For those of you unfamilar with these discussions, Principled is refering to one theoretical paper that state with a NRST there would be a 22% drop in producer prices, not consumer prices. That's cool if you're a producer, if you're a consumer you won't see that drop in prices.
Didn't our current tax mess originate from a "flat tax"? If so, I see the flat taxers as just being willing to hit "ctrl-alt-delet".
Me either! Price stability will not be due to anyone's benevolence - it will be due to a desire to survive.
Why doesn't a company go out today and simply increase prices? Why not?
So talk radio guys go on the air touting AFFT's plan in detail without consulting with AFFT before hand?...Right.
Speaking of my "credibility" I at least tool the time to read the bill, something you've obviously never done though you hav no problem making things up or parroting someone elses lies.
But that would piss off our "trading partners" such as China.
He claimed that it would repeal the 16th Amendment! BWAAAAAAAAAAAAAAAAAAAHAHAHAHA!
And he stuck in the mythical 20% drop in producer prices and claimed the rate would "probably" be less than 20%.
What a buffoon! He's more confused than ever.
Bump for the NRST!
Glancing through this thread, it doesn't appear anyone has addressed the obvious positive aspects of this plan in their criticism of it. When it's all said and done, will we really be paying LESS to uncle Sam? I don't think so, but I could be wrong. But let's say that's right, and that I pay the same amount to the BLOATED government we have today, or even MORE. Like 1-5% more. Even if that's true, then....
1. I will keep, on average, (depending where they 'put me') 20-30% MORE. Now, careful here, because if you're saying something like "47, you fool, you just admitted it's going to stay the same", no I'm noooottt! Think about it. I'll still be paying the same in taxes, yes, but I'll get to KEEP MORE money. So obviously what this means is that I'll still pay the same in taxes (or maybe 1-5% more), but I'll get at LEAST 20% more in TAKE home pay.
2. What about the rise in prices for all goods, as these exorbadant taxes are imposed on all goods? (which, as far as I understand it isn't true, it's imposed on all NEW goods, not used). Even if it's true that it's all goods, then still, as Neil Boortz pointed out, market forces will drive the prices down, as the companies that are making the products WILL NO LONGER HAVE TO PAY THEIR TAXES.
What's the bottom line picture here from these two points? In the worst case scenario (where my net effective taxes go up by 1-5%), I STILL get to keep 20-30% MORE of my own money! Not only that, but after a period of time where free enterprise "works its magic", the prices for everything will be VIRTUALLY THE SAME.
That is unless one has a pessimistic, paranoid version of business, i.e, "Nah 47, all the companies will just 'agree' to keep their prices higher, even though they're not paying any taxes anymore, just to gouge us, the little guy". Yeah, ok, THAT'S a realistic view of free market enterprise. Actually, it's like I said, pretty paranoid.
As a side note, I wonder why some on here, FR of all places, are fighting the idea of getting rid of the IRS and AUDITS. Throw out everything I just said above, and concentrate on THAT. If this system does nothing else but play a shell game with our money, and, in the end, ends up making us pay ~5% more in taxes, BUT, at LEAST, eliminates the threat of AUDITS, can't we all agree that at least THAT makes it worth it?
Or are there a bunch of tax lawyers and CPA's on these NRST threads?
Why doesn't a company go out today and simply increase prices? Why not?Why does any company try to increase their profit margin? Because there in it for the profit. How many times have you heard a company tout "costs are down, profits are up"?
I see what you mean. That does not sound good.
Forget how they "treat" my savings. How I SPEND my savings is the issue. The price of my new car, golf clubs and other things. Let me guess,,,they will cost less,,,right? And you personally will establish a fund to reimburse me for the difference in the most unlikely scenerio that you are wrong?
No, no one trusts that the income tax would be "phased out." The 16th Amendment would be repealed so that the Fair Tax could not possibly be an "add on" to the income tax.
Sorry john but the regressive income tax is an important part of the Communist Manifesto and has nothing to do with a stable government. The citizens under every corrupt government in history have had their prosperity stolen through an income tax.
Let's hope your car wasn't made in Germany and your clubs in Japan.
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