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
There is a great increase of government jobs here. Not good.
Someone has to process the "rebates" and verify what category you are in. Welfare already showed us that women came in to sign up for welfare with children that weren't theirs. When your family grows or shrinks, this is an enormous tracking problem, computers or not.
I would rather the government spends a lot less money on finding out who is or is not entitled to VOTE and to make sure they can only VOTE ONCE in ONE place.
IMO, a better way than the "rebates" is to carefully select what items are "basic living necessities" and just NOT tax them. Some states don't tax items now that they consider necessary, like bread, milk, etc.
If you don't tax it in the first place, you don't have to come up with a schedule for rebates, there are no over rebates or under rebates, the customer just never pays it in the first place. END OF DEAL!!!
This is part of the KISS method of accounting: KEEP IT SIMPLE, STUPID.
When did we start imposing Corporate taxation and income taxes on foriegn corporations and employees in foriegn lands?
The fact is that foriegn companies produce goods cheaper then we can here, therefore they offer their products for a cheaper price already. That is why their market share keeps growing, while the US mfg. companies are seeing the decline.
What exactly would be wrong with the picture you paint? Are we not entitled to use our property as we see fit?
I prefer motorcycles, myself, but thanks for the offer.
Most private retirement plans are subject to income tax on the benefits. Also, assets held outside of retirement plans are subject to taxes, such as bonds, stocks, interest on savings, etc. Prices of U.S. goods would drop; mortgage rates would drop. Also, your children and grandchildren would have better prospects for jobs and economic success, by far, than under the present tax system.
First he says no federal income tax. Then next he calls it a National tax. What's the difference?
The difference between paying taxes at a retail store, and paying taxes to the IRS with government hounding over you for records and information and payment of taxes.
So say the National Tax starts at 23%. Few years go by and that's not enough. They bring it to 30% and so on. Please, don't tell me to believe they would never raise that number!
When every voter is affected by a change in rates immediately, you can bet that Congress Critters pause.
As it is, over half the voting population perceive little or no federal taxation making for a natural constituency for more government and higher taxes on the other guy. Until the costs of government as well as largess is felt by all, you can figure that government will continue to grow continuously more powerful and intrusive.
A very necessary constitutional link between the individual and government has been broken with the advent of the graduated income tax and taxes on business hidden behind a veil of inflation.
McCulloch v. Maryland, 17 U.S. 316 (1819)
- "The power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the Government may choose to carry it. The only security against the abuse of this power is found in the structure of the Government itself. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation."
That is why a return to founding principles are absolutely necessary.
"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "
"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.
They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue."
When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four."
If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.
This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
The income tax must go.
I wasn't implying that at all. What I was implying is that half the nation pays nothing or receives some redistributed income and the other half pays for all the entitlements. Even the half paying taxes today would agree 23% is to high, but the education provided to the moochers might be worth it.
Don't be so defensive. I stated that I agreed with you that 23% was to high, and I meant it.
That was part of the original tax ideas of duties and imposts. It balances their cost of production with ours. And if a duty is high, somebody here will work to produce a domestic made version. Thus putting people to work.
But the multinationals have convinced everybody it's a "global economy".
Not for our benefit. Multinationals have no allegiance to any particular country.
Thanks for all your PROJECTIONs. I assume you will handy with the difference in price to reimburse me if your projections are incorrect? Where will I pick up the check?
Your right, not every deduction is taken by the federal government, but those that are would be eliminated. If you aren't satisfied with the pay provided to you based on your benefits or state deductions, you are free to either move to another state or to renogetiate your benefit package.
You can do that today, but you would still be subject to the largest deductions regardless of your benefit negotiations or your state of residence.
Paycheck? What paycheck? I'm way too busy supporting all those low-paid, disposable illegal immigrant guest workers to receive a paycheck.
When did we start imposing Corporate taxation and income taxes on foriegn corporations and employees in foriegn lands? The fact is that foriegn companies produce goods cheaper then we can here, therefore they offer their products for a cheaper price already. That is why their market share keeps growing, while the US mfg. companies are seeing the decline.The point is that even if the 22% drop in producer prices were true, that's goods manufactured in the US, not services and not imported goods. So even if it were true, and producer price drops were passed on 1-to-1 to consumer prices, the drop in the price of all our consumption would be much less than 22% because US manufactured goods are only a portion of our consumption.
No, it would be harder to hide your tax liability with the Fair Tax, because anyone wishing to do so would have to obtain the collaboration of the seller (who is liable for the sales tax and must file the return). Right now, falsification of tax returns may be done by the taxpayer alone. The "cash economy" now estimated to be $40 billion per year or more, and the Fair Tax should be able to capture most or all of that. Some small retailers will try to bootleg sales, but that will be risky and their chance of being caught is greater than under the present system.
Now, what is lowering the cost of food, clothing, shelter, and transportation?
Competition for you dollars, exactly the same thing that set prices for you limited dollars today.
Just exactly how is that guaranteed? Is the government going to oversee pricing of independent business? Hmm, so business will have government controls??
You want guarantees of a constant total payment for goods (embedded tax plus tax free pricing, vs visible tax plus taxfree price)? You don't have any now.
It sounds scary to me.
Yep economic freedom and free enterprise is scary isn't it.
The Fair Tax would not replace State taxes. But States would be wise to conform to the reformed federal tax system by repealing state income taxes, payroll taxes, etc.
It is a global economy. To deny it means the death of creativity and technological advances in our country. Isolationism means making our dollars less valuable and giving us fewer choices of products. I digress from the subject....My apologies.
The single biggest reason for manufacturers leaving this nation is the tax monster we have created today (Lump all government interference into that...) and the quickest way to heal the wound that is cutting our throats is to kill the monster.
Wouldn't the foriegn produced goods be forced to lower their prices accordingly? Beleive me, the foriegn producers are not selling for the lowest possible cost today, they are selling just cheap enough to undercut their competitors prices. If their competitor lowers prices, they will be forced to do the same or sacrifice their competitive advantage.
Technological advances? Oh, you mean all those nifty things like VCR's that we invented then gave to the Japanese...
Every person I ever heard advocate "global economy" is somehow involved in buying it there and selling it here.
So I guess we disagree.
Employment explosion?
Maybe among the illegals, after all they would also see a higher wage, and the employer would no longer be worried about not withholding payroll tax's!
Unfortunate that the author did not allow for the effects of greed by the large corporations.
As I stated, a good start, but incomplete.
I'm not being defensive,
I'm on an offensive attack.
The NRST proposal is one of the most beligerantly convoluted, corrupt and fraudulent tax scams to have ever polluted the halls of Congress.
My apologies if you inadvertantly got caught in the crossfire.
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