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
Then how do you know how much it is or that it's even there.
Since you think you do know where and how much it is, do what no one else can, demonstrate, not explain, how it works...
But the single mother of two would receive the prebate of her sales taxes, so would pay no payroll taxes and no sales tax. She would be far better off than now.
No. It retains all of its value.
Fair tax on savings
Fair Tax FAQ
Check 'em out. They're quick and to the point. Come back w/ questions...:0)
"23% is way too high for a blasted sales tax anyway."
I agree, as well as just under half the American population. However, I also see this as a great way to open the eyes of the moochers. Once they see what their greed costs us all, they may just come over to our side to reduce the size of the Fed!
Because the prebate is the mechanism that relieves poor people of the burden of paying payroll taxes or sales taxes before they are allowed to feed themselves and their families. "Regressive" has always been the main line of defense against the sales tax as a replacement for the income tax; but no more!
Competition will prevent this. If you don't think competition will force pricecs down and wages up in an amount corresponding to the eliminated costs, then how do you explain today's pricing and wages being competitive?
Much easier to catch co-ops than the many tax cheats and the cash economy we have now.
Not sure. In Ca, we already pay 8.25% sales tax which would make the rate 28.5% to 31.5%. Would not be a savings to me.
I paid as much as 50% of all my pay to the government most of my working life, and now that I'm ready to retire and spend whats left, they will no longer tax earnings, but spending.
Yeah, this thing will look real good to folks in my situation.
"I wonder what the answer would have been if the sales tax were 18% and an across the board tariff on foreign durable goods of 5% were in place, 30% for Communist countries if we trade at all."
Now, that looks like a reasonable way to address these issues. Thanks for the insight......
No - it made it constitutional to tax income they way we do it. The 16th is not what allows our income tax... it only allows it not to be apportioned IIRC.
Competition is the reality of life for all businesses, and particularly for small ones that enjoy no monopoly. Competition will take care of prices, and the savings on compliance alone will be the economic equivalent of ten major tax cuts all rolled into one.
I disagree.
First, this guy is a talk-radio guy. He doesn't have anything to do w/ AFFT. A talk-radio host's errors/misunderstandings say no more about the credibility of AFFT than it says about your credibility.
If the companies didn't drop their prices, the doors would be wide open for me to start a company that could offer competitive products for lower prices. The market would adjust as quickly as new companies could begin operation. That would vary from industry to industry, but it would happen over time.....
Retail prices always go up. People get used to valuing goods a certain way and don't flinch at slight increases. Retail prices only seem to go down for obsolete products or products on the verge of obsolescence.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. I simply don't think producers or manufacturers will pass any savings on through to consumers: I think they'll pocket the difference. If I were a businessperson, I sure as hell would. You're not in business to be a great guy; you're in business to make money.
Better rethink and adjust your math calculations. The major economists who have studied this predict lower prices for such goods, not higher ones.
How about that self employed artist? Does he have to collect and remit 30% of his/her income when he receives payment for someone's appreciation of his talent?...I thought so.
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