Imagine receiving 100% of your paycheck!

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.

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.

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.

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.

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.

Or are there a bunch of tax lawyers and CPA's on these NRST threads?

You left out Tax Protesters that think they have created a haven for themselves from the current tax laws and suspect their cash economy livings might actually have to compete on a level field with legitimate business when income/payroll taxes are repealed.

Heck they might even have to pay some tax once in a while for the goodies they want from the mainstream.

I know you cannot feed 3 people on $45 week, but remember that your grocery bill at the local supermarket is much more than just groceries.

All the cleaning supplies, TP, paper towels, air fresheners, OTC medical supplies, flashlight batteries, school supplies, greeting cards, stamps for mailing, lottery tichets, are all included inside that "grocery" bill. Take a serious look at what life style you have created by being able to purchase a wide array of items at the "grocery" store and then get a real shock about what the food really amounts to. Candy and soda and chocolate ice cream do no count as basic food, either for this plan. I know they count in my house and in many houses, but not in this plan!

Because it would open the door to government determination of preferences for "necessities." Once the door is open, we would soon be debating whether "yachts" should be exempt.

No, the rebate is intended to keep it simple. Everyone gets the rebate, so no one has to prove a poverty level of income to get it. Sending out rebates at the beginning of each month is a job, but much less complicated than the present system.

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.

Maybe. The dynamics of prices is way too complex for anyone to predict, especially with such a dramatic changes as going from an income tax to a NRST. Be wary of anyone who states guesstimations as fact. They are just doing a sales job.

Well now let's just see!

We CURRENTLY have a Communist inspired SLAVE tax, which requires the modern equalivalent of the Spanish inquisition for enforcement, and under which the government has a APRIORI claim to whatever percentage of the fruit of your labor as they can get away with at the moment vs a tax system, the NRST, under which everyone gets 100% of what they earn, requires no effort what so ever on the part of individuals to comply with, and in which the government need not even know so much as anyone's name to enforce.

Which of those which promotes F R E E D O M ? ? ?

Easy choice for HONEST folks IMHO!

I'll never understand the opposition to this idea on FR. Like I said, the idea of eliminating audits should, by itself, be good enough, even if everything else stays (financially) the same.

No, the rebate is intended to keep it simple. Everyone gets the rebate, so no one has to prove a poverty level of income to get it. Sending out rebates at the beginning of each month is a job, but much less complicated than the present system.

It's not a rebate, it's a demogrant.

I assume you must have plenty of guarantees in hand for your returns under the present system. Right? Yes, I'm an optimist. But at least the Fair Tax Act (HR 25) gives us plenty of room for optimism. And the economists whose analyses support it are entitled to some weight of consideration.

"Also, what about Tax avoidance? I bet the black market shoots up, specially near Border areas where you can slip over the border and buy Canadian or Mexican."

Sure, let's talk about that. Let's be sure to remember that under the present tax system, pornography, recreational drugs and illegal labor fly almost totally below this system's radar. According to one economist, those three sectors comprise $1 trillion/year of our total economy. When the pornographers, drug dealers and illgal workers spend thier income, they will pay the NRST just like the rest of us.

Do you honestly believe that the border problem that you are so concerned about is anywhere near $1 trillion potentially?

I'll never understand the opposition to this idea on FR. Like I said, the idea of eliminating audits should, by itself, be good enough, even if everything else stays (financially) the same.

You mean individual audits. Businesses would still be audited, maybe even more.

Businesses would still be audited, maybe even more.

That may be true, I'm not an expert on this proposed legislation. I don't see how it could be possible though, since the very institution that does audits (the IRS) would be shut down.

What other expectation do you have from capitol investments or expanding research? Both are drivers of productivity and job expansion. By your own statement you claim the "evil" corporations will take these actions, yet you fail to realize the job growth associated with these actions.

"Unfortunate that the author did not allow for the effects of greed by the large corporations."

Ah, now the true jealousy of your statements has been made clear. Class warfare is the single most affective tool at maintaining the current system of socialistic tax schemes.

Now a business will have 50 tax collection agency to deal with. The states will take over the IRS's job. 50 little IRSes, each with their own rules, regulation, procedures, etc... and business will have to file once a month to each of the states they do business in instead of once a year (or quarter) to one agency. So much for simplicity.

Now a business will have 50 tax collection agency to deal with.

Just out of curiousity, where does this "50 tax collection agencies" number come from? Like I said, I'm not an expert on the proposed legislation. From what I've heard it sounds good though.

What other expectation do you have from capitol investments or expanding research?

Our current system reduces the risk (and return at the same time) of investments and R&D by allowing businesses to write off investment losses and R&D costs. Without these write offs, bad investments will go straight to the profit/loss of the company. And any R&D that doesn't pan out will be a total loss for the company. How this would affect a company's decisions is anybody's guess, but it wouldn't be far fetched to think that due the greater risk, investment and R&D would decrease.

Just out of curiousity, where does this "50 tax collection agencies" number come from? Like I said, I'm not an expert on the proposed legislation. From what I've heard it sounds good though.

The states will be collecting the federal sales tax.

LOL! You are REALLY grasping at straws now!

The truth is that 45 of the 50 states ALREADY have sales tax enforcement agencies in place which by - the - way, are invisible to 99.44% of the population.

"I simply can't envision retail prices dropping on the order of 20% across the board due to nothing other than manufacturer or producer benevolence."

Neither can I. However, I do understand how a free market economy operates and I see price competition all around me every day. It's very obvious.

This idea that the price drops are due to the generosity or benevolence of producers and retailers is one of the most common objections to the FairTax. In fact, as economic theory holds, maximizing price is NOT synonymous with maximizing profit because of the elasticity of demand. Businesses are in business to maximize profits, not prices. There are many, many, many examples of that principle all around us.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.