Posted on 02/03/2005 9:54:12 AM PST by EternalVigilance
CONGRESSMAN STEVE KING INTRODUCES RESOLUTION TO ELIMINATE IRS
WASHINGTON - As W-2s arrive in mailboxes this week, U.S. Congressman Steve King has introduced a resolution to repeal the 16th Amendment to the Constitution, which gives Congress the authority to collect income taxes.
H.J. Res. 16 would eliminate the IRS and the means for the government to collect income taxes.
"The IRS is an out-of-date, trillion-dollar-a-year drag on our economy," said King. "Instead of continuing to band-aid our complicated, leaking tax system year after year, we can choose a permanent solution and finally rid Americans of the fat leech they feed their paychecks to."
King has been a long-time supporter of the FairTax, a national sales tax placed on goods and services, which would replace the income tax.
H.J. Res. 16 must be approved by two-thirds of both the House and Senate, and then sent to the states, where three-fourths must ratify the amendment.
For information on the FairTax, visit:
http://www.fairtax.org
U.S. Congressman Steve King
Iowa's Fifth Congressional District
1432 Longworth House Office Building · Washington, DC 20515
http://www.house.gov/steveking/
INcome taxes are not a "cost" if there is no profit there is no income tax.
The income tax system certainly imposes costs on a busiess, whether or not the business ends up owing a any income tax per-se.
| http://www.taxfoundation.org/compliance2002.html |
Overhead Compliance CostsThe complexity generated by the growth and constant change of the tax code creates two general types of economic cost: overhead and opportunity cost. Overhead can be divided into three principal activities: the economically sterile exercises of tax planning, compliance, and litigation, all of which act like tax surcharges on taxpayers. *** snip ***
The Burden of Compliance CostsAs shown in , and , the Tax Foundation estimates that in 2002 individuals, businesses and non-profits spent over 5.7 billion hours complying with the federal income tax. Using an hourly cost of $29.98 for individuals and $37.26 for businesses and non-profits, the estimated cost of compliance in 2002 is $194 billion (See Methodology section for details about how the hours and wages were determined)—Individuals bear a cost of $86.1 billion, businesses bear a cost of $102.5 billion and non-profits bear a cost of $5.4 billion. Therefore, the overall compliance cost surcharge alone amounts to nearly 20.4 cents for every $1 collected by the federal income tax. |
The same figure that Dr. Williams uses.
Dr. Walter E. Williams, March 2000:
http://www.freerepublic.com/forum/a39b6487a1fb0.htmThe average taxpayer now pays more than $8,000 a year, working from January 1 to May 8 to pay federal, state, and local taxes. In addation to the out-of-pocket cost, Americans spend 5.4 billion hours each year complying with the federal tax code-roughly the equivalent of 3 million people working full time. If it were employed in productive activity, the labor now devoted to tax compliance would be worth $232 billion annually. The federal cost of hiring 93,000 IRS employees is $6 billion. If these Americans weren't fooling around with the tax code, they could produce the entire annual output of the aircraft, trucking, auto, and food processing industries combined..." Emphasis added
But only the beginning of the costs that are imposed on businesses throughout the production chain by the current federal income/payroll tax system.
American General Contractor's Association
http://www.agc.org/Legislative_Info/Members_Testify/testimony_04-10-00.asp
- Paperwork is the most visible compliance cost, but it is clearly not the only, and perhaps not the largest compliance costs. Return processing, determining liability, recordkeeping and other burdens are an estimated 19 to 33 % of the total revenue raised by the income tax system and 2.0 to 3.5% of the Gross Domestic Product (GDP)[an additional 3% of GDP1999 = $279Billion]. We waste money each year on seeking to avoid taxes, avoid trouble with the IRS, interpret the laws or determining the best course of actions with the laws.
- Adding to the costs and to unfairness, our tax laws are so complicated not even the common tax lawyer can understand them. There are a number of ways of measuring complexity; one of which is the number of penalties issued and then abated for reasonable cause. There are more than 34 million civil penalties issued each year; more than a third of all small firms receive payroll tax-related penalties alone. More than 50 percent are abated.
- Our government embroiled its citizens in more than 35,000 litigation actions. Taxpayers sustained more than 3 million levies. As long as we insist upon an income tax system, the system needs to be complex. The system needs to be enforced with a heavy hand. The system needs to have all of the 34 million in civil penalties. The system needs to be intrusive. It is the price we have to pay for an income tax system.
- It is not a harmless myth. The hidden cost of our tax system ensures that Americans remain ever ignorant of the increasing proportion of federal taxes they pay. Taxes are now more than 20 percent of Gross Domestic Product, and despite the claims of tax cuts, Americans pay more now than we have in the history of our nation, including the height of World War II. Upstream taxes only ensure that taxpayers cannot see the true cost of our government, raise the costs of goods and services and ensure more taxes in the future.
There is another problem with hidden taxes. Apart from ensuring the system lacks integrity, hidden taxes buried in goods and services reduce exports, and result in lower profits, lost productivity and a competitive advantage to foreign commodities.
Taken altogether, the true tax burden impressed upon us all through higher prices and loss of productivity exceeds the mere revenue collected by the govenment by substantially more even than the $593 billion estimate of James Payne in 1995:
Town Crier Staff Writer
Clyde Noel : http://www.losaltosonline.com/latc/arch/9528/"In a book titled "Costly Returns," economist James Payne estimates the nation's bill for tax record-keeping, audits, filing tax attorneys and accountants totals an astonishing $593 billion. To put it another way, that's more than twice as much as last year's entire defense budget and $240 billion more than all 1996 Social Security outlays."
Broader estimates for example like that of Daniel Pilla:
Killing the IRS, By Daniel J. Pilla, Reason Magazine July 1995
"There is little about a flat-tax system that will trim the staggering cost of tax law compliance. At present, this burden is estimated at $700 billion annually. Much of the cost is associated with recordkeeping and tax law enforcement, neither of which is reduced by a flat tax. A flat tax certainly involves a simpler tax return, but return preparation is the smallest component of tax law compliance.
The solution to our tax problem is to adopt a national retail sales tax in place of the personal and corporate income tax. Only a sales tax can eliminate the invasiveness of the IRS, since one's income and lifestyle are irrelevant."
Not to mention the even greater losses on the economy that result from depessed sales(deadweight losses) as a concequence of tax system inflated prices much of which would be relieved by removing the more direct tax related business costs accounted for above.
http://www.heritage.org/Research/Taxes/hl565.cfm
An American Economic Review study found that every dollar of taxes could impose as much as $4 of lost output on the economy, with the probable harm ranging between $1.32 and $1.47
Edgar K. Browning, "On the Marginal Welfare Cost of Taxation," American Economic Review, Vol. 77, No. 1 (March 1987), pp. 11-23."Another study in the Journal of Political Economy estimated that the corporate income tax costs more in lost output than it raises for the government."
Jane G. Gravelle and Laurence J. Kotlikoff, "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, Vol. 97, No. 4 (1989), pp. 749-780.
Chief Executive, The New directions in tax reform -
May 1995.Tax expert Ernest Christian Jr., a partner with Washington's Patton, Boggs & Blow, reckons these are low estimates or at best incomplete. Citing a U.S. Treasury study which indicates that 6 billion man-hours are consumed each year just in the record keeping for income and payroll tax returns alone, Christian says the true burden on the U.S. economy is probably closer to $1 trillion. For example, Jane Gravelle of the Congressional Research Service estimates that economic loss from the corporate income tax is equal to about 97 percent of the corporate tax revenue collected.
STATEMENT OF REPRESENTATIVE DICK ARMEY
HEARING ON THE IMPACT ON
INDIVIDUALS AND FAMILIES OF REPLACING THE FEDERAL INCOME TAX
Committee on Ways and Means, Full Committee, 4-15-97 Testimony
Hinders Economic Opportunity
According to a study by Jane Gravelle, an economist with the Congressional Research Service, and Larry Kotlikoff, an economist at Boston University, the corporate income tax costs the economy more in lost production than it raises in revenue for the Treasury. Dale Jorgenson, the chairman of the Economics Department at Harvard University, found that each extra dollar the government raises in revenue through the current system costs the economy $1.39.
Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf"Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "
From where do you imagine the funds to pay these taxes come?
I've learned a great deal from the economist papers posted in this debate on other threads by the FiarTax supporters and the FairTax opposers. I suspect I may know some of what you refer to when you say "fundamental disagreements". Regardless, I've come to the conclusion that many economists have issues regarding understnding the dynamics because of certain "economic principles" which they consider true, and are in most models, do not lend themsleves to the dynamics involved in the FiarTax implementaion.
For example: One such principle, which I mentioned earlier, is the concept that matching payments for payroll taxes are paid for by the wage earner in the form of lower wages, not by the consumer in the form of higher prices. Certainly, in a model predicting the effect of rasing the payroll tax, that principle applies fairly acurately. However, applying that principle to predictions of how eliminating the existing tax code and replacing it with a consuption tax, will lead to a flawed conclusion. In the case of the FairTax, unless the gross wages are increased by the amount of eliminated payroll tax, you can not treat the payroll tax as being paid by the wage earner. Therefore, the traditional, and generally accepted "economic principle" for other uses does not apply to the FairTax discussion.
I could also imagine you consider embedded taxes to not be a significant issue in determining prices. However, reduced costs by the elimination of the corporate and payroll taxes, in a competitive market, would arguably result in a reduction in price directly in response to the reduction of cost. This would allow a direct reduction in the price of exports. Thus, either the FairTax CREDITS exports, or the old system TAXED them. Either way you look at it, the FairTax is a net advantage in terms of competitiveness of American manufaturers and exporters.
I particularly disagree as to the benefit of VAT and believe them to be terrible for the cities particularly. Jane Jacob has written about this in, I believe, Cities and the Wealth of Nations.
You've intrigued me. Could you possibly post some exceprts relevant to our discussion?
Exports from the US have no sales taxes in them as do exports from Europe which is why taking them out is not an extra incentive to their exporters. They have the other taxes which are common to both like RE, payroll embedded. Nor are exports affected by income taxes. When imports reach the consumer they face the same sales taxes which domestic production faces.
I think there is the potential miscommunication in that you seem to be thinking in terms of the EU and its member states equating to the US and its states. And I seem to be thinking of the US equating to each EU member state.
As I see it, France does not trade with Nebraska, France trades with the United States. The United States does not trade with the EU, the United States trades with France.
You seem to be making the assertion that since the EU does not charge a border VAT, neither should the US, and since it's the member states that apply the EU VATs, it equates to our state sales tax and cancels out. Please correct me if I misunderstand your approach. However, if I am right, I think the approach is flawed in terms of your conlcuding existing tax equity, if for no other reason, the EU VATs are significanly more that our sales taxes, especially given some of our states do not even have a sales tax.
A VAT will not benefit us wrt to China. It cannot change the impact of the worldwide division of labor which China bases its policy on. We can never compete with China in the production of small value, low technology and low skill items our work force is too highly paid for that.
I have heard and read some good arguments that suggest that the defining issue in regards to Chinese competition is not the labor rate, as it is similarly low in other parts of the world, but due to their artificially pegging their currency to ours. I may stand corrected, but I hardly think you could make the case that the FairTax would not counteract at least some of the detrimental effect of China's not floating their currency. And even if there is no net effect in terms of international competition (for the sake of argument), there would still be an advantage under the FairTax, in that domestic sales of Chinese imports would at least share in a greater part of the Federal Tax burden.
If it isn't a direct tax, then I don't know how anyone could argue any other form of taxation is direct. Anytime I sign a check to the Dept of Treasure, I would consider it a direct tax.
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. ... Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country.
Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard. The state of agriculture and the populousness of a country have been considered as nearly connected with each other. And, as a rule, for the purpose intended, numbers, in the view of simplicity and certainty, are entitled to a preference.
Hylton v. United States(1796), 3 U.S. 171
"A general power is given to Congress, to lay and collect taxes, of every kind or nature, without any restraint, except only on exports; but two rules are prescribed for their government, namely, uniformity and apportionment: Three kinds of taxes, to wit, duties, imposts, and excises by the first rule, and capitation, or other direct taxes, by the second rule. " "the present Constitution was particularly intended to affect individuals, and not states, except in particular cases specified: And this is the leading distinction between the articles of Confederation and the present Constitution." "Uniformity is an instant operation on individuals, without the intervention of assessments, or any regard to states," "[T]he DIRECT TAXES contemplated by the Constitution, are only two, to wit, A CAPITATION OR POLL TAX, simply, without regard to property, profession, or any other circumstance; and a tax on LAND."
Springer v. United States(1880), 102 U.S. 586
"The central and controlling question in this case is whether the tax which was levied on the income, gains, and profits of the plaintiff in error, as set forth in the record, and by pretended virtue of the acts of Congress and parts of acts therein mentioned, is a direct tax." "Our conclusions are, that direct taxes, within the meaning of the Constitution, are only capitation taxes, as expressed in that instrument, and taxes on real estate; and that the tax of which the plaintiff in error complains is within the category of an excise or duty." "[W]henever the government has imposed a tax which it recognized as a direct tax, it has never been applied to any objects but real estate and slaves."
POLLOCK v. FARMERS' LOAN & TRUST CO., 158 U.S. 601 (1895):
- "We have considered the act only in respect of the tax on income derived from real estate, and from invested personal property, and have not commented on so much of it as bears on gains or profits from business, privileges, or employments, in view of the instances in which taxation on business, privileges, or employments has assumed the guise of an excise tax and been sustained as such."
- Our conclusions may therefore be summed up as follows:
First. We adhere to the opinion already announced,-that, taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.
Second. We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.
Third. The tax imposed by sections 27 to 37, inclusive, of the act of 1894, so far as it falls on the income of real estate, and of personal property, being a direct tax, within the meaning of the constitution, and therefore unconstitutional and void, because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.
KNOWLTON v. MOORE, 178 U.S. 41 (1900)
- "The constitutional meaning of the word direct was the matter decided. Considering that the constitutional rule of apportionment had its origin in the purpose to prevent taxes on persons solely because of their general ownership of property from being levied by any other rule than that of apportionment, two things were decided by the court: First, that no sound distinction existed between a tax levied on a person solely because of his general ownership of real property, and the same tax imposed solely because of his general ownership of personal property. Secondly, that the tax on the income derived from such property, real or personal, was the legal equivalent of a direct tax on the property from which said income was derived, and hence must be apportioned."
Flint v. Stone Tracy Co.(1911), 220 U.S. 107
- "The Pollock Case construed the tax there levied as direct, because it was imposed upon property simply because of its ownership."
BRUSHABER v. UNION PACIFIC R. CO., 240 U.S. 1 (1916)
- "the conclusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class [240 U.S. 1, 17] of direct taxes on property, but, on the contrary, recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such"
"I don't think the point of the FairTaxers is that the underground would not be able to avoid taxation in terms of collecting tax. It's that under the current income tax system they pay NO tax, under the FairTax, they will at least have to share the tax burden when they engage in the legitamate economy. It doesn't FIX the problem, but it improves it to some degree."
A major component of the underground economy has to do with illegal immigrants. These people are not now paying income taxes in many cases. They would start paying taxes at the checkout counter and, because they would not be receiving the rebates that legal Americans are entitled to, would actually be paying a higher effective rate.
"The biggest worry is a dramtic increase in unemployment as a result of decreased demand that is the political issue which cannot be ignored particularly knowing the RATmedia and RAT responses."
Your Nightmare has been attacking the idea for some time now. One of the biggest concerns he has is that the labor supply would be inadequte to support the economic growth that is forecast based on the dramatic shift in pricing of US produced goods relative to foreign made goods.
Perhaps the most probable outcome is somewhere in the middle.
Your Nightmare has been attacking the idea for some time now. One of the biggest concerns he has is that the labor supply would be inadequte to support the economic growth that is forecast based on the dramatic shift in pricing of US produced goods relative to foreign made goods.You are misstating my position. I wasn't even commenting on whether the labor supply would be adequate or not. I was specifically discussing the result from the Jorgenson/Wilcoxen model that had the labor supply increasing 30% in the first year. That is unrealistic and points to the flaws in his model.
"What I find interesting about this whole debate is that repeal of the 16th Amendment wouldn't mean an end to the income tax - the courts have already ruled that it didn't expand Congress' taxing power, it just made it clear, as the courts had previously ruled, that an income tax is not a direct tax, but an indirect excise tax on the economic activity of remuneration of labor."
That is why Congressman Linder, the FairTax bill's primary sponsor, has always spoken of the need for an "aggressive repeal", which means that we don't just turn back the clock to 1813, but that we explicitly state that any and all income taxes are illegal.
"If one buys a new home paying the new sales tax how will he get that tax back when he sells? That tax will not be folded into the home's value thus would appear to be unrecoverable."
That is incorrect. Suppose you buy a $250K house after the FairTax is enacted. Your neighbor buys one just before and his is also $250K. The difference is that he has the cost of the old tax system imbedded in his price and your house has the sales tax broken out separately. Both houses should sell for $250K plus appreciation some years later. His mechanism for recovering his imbedded taxes is the same as yours for recovering your broken out sales tax - in your sales price to your new buyer.
"The big winners will be used homes, which, I think, would gain equity by the passage of the FairTax."
I disagree. If new home values will be stable (as we both believe they will), then I believe that resales will be stable also.
"If these taxes are not imposed on new construction for businesses then the housing market will be pushed towards building more multi-unit apartment buildings and away from single family homes."
"I would agree with you here."
If rental rates and home prices (after-tax) are stable, as they will be since both are taxed with the sales and both will benefit from any new construction having none of the old tax system imbedded, then the demand for rentals vs owned homes should be unaffected. If demand is stable, then construction should be stable.
"It sounds like a scheme to tax the same thing each time it is sold. Some products and services are sold quite a few times before they reach their target of completion."
On the contrary, the FairTax taxes once at the final point of sale to a consumer. It eliminates the corporate income and payroll taxes which build up unseen within the production chain.
"You are misstating my position. I wasn't even commenting on whether the labor supply would be adequate or not. I was specifically discussing the result from the Jorgenson/Wilcoxen model that had the labor supply increasing 30% in the first year. That is unrealistic and points to the flaws in his model."
How did I misstate your position? Do you or do you not believe that the labor supply will be the primary limiting factor in the economic expansion that we will experience when the FairTax is enacted?
So how does it work with home improvments, does the contractor pay the tax with the material costs and than get taxed again on the total contract price ?
"So how does it work with home improvments, does the contractor pay the tax with the material costs and than get taxed again on the total contract price ?"
Only the end user pays the tax. If a contractor buys materials, he does so tax-free. When he bills his customer, the end using consumer, he tacks it on and remits to the state (probably).
When you go to Home Depot and buy the same materials, you would pay the tax if you are an end using consumer.
Ok, so you will need a business license to be exempt from the taxes on the materials and your effective payroll tax will be whatever the Fair Tax rate is, am I close ?
"Please explain what is the nature of the alleged advantage and what percent of tax revenues that amounts to."
At each level of the production chain, producers pay corporate income and payroll taxes, not to mention huge compliance costs. As with other costs, they price their product to recoup their costs and make some profit. These costs are cumulative, i. e. they account for a larger and larger percentage of prices as they move up through the production chain. Dr Jorgenson of Harvard has estimated that they account for 20 - 25% of final end user prices on average.
If we remove these costs from the production chain, competition will drive them out of the pricing model relatively quickly. Even regulated monopolies, such as the power companies, have regulatory authorities which
oversee their rates. They use a cost plus model that should adjust the rates relatively quickly to the new cost structure.
The FairTax bill also has a transition rule which enables the holders of inventory (including home-builders) to take a credit that approximates the amount of taxes imbedded from the old system. The intent is so that retailers can pass along the lowered prices of the new regime on day one without waiting for the old stuff to cycle through the system.
"Ok, so you will need a business license to be exempt from the taxes on the materials"
Yes
"and your effective payroll tax will be whatever the Fair Tax rate is, am I close ?"
I'm not sure I understand your question. There will be no payroll tax. End users will pay the sales tax. The only other federal taxes would be excise taxes.
It sounds simple enough, all taxes are rolled into the retail/consumer cost which includes both labor and materials. I still have to see how they will handle the cost of doing business like buying new equpment and machinery. Without those write offs no one is going to be buying anything new and will hold on to the old stuff as long as they can.
How did I misstate your position? Do you or do you not believe that the labor supply will be the primary limiting factor in the economic expansion that we will experience when the FairTax is enacted?We weren't talking about the real economy, we were talking about an economic model. That you can't tell the difference is troubling. Any reasonable person knows that the labor supply cannot increase 30% in one year.
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