Posted on 08/08/2005 5:20:29 PM PDT by Man50D
As with the weather, a lot of people complain about the U. S. Tax Code, but few do anything about it. The reality is that the opportunity to do something about the tax code doesn't come around very often; maybe once per generation but now, in the year 2005, we have that opportunity. For the sake of all Americans and future generations of Americans, we must not squander this chance.
The President made tax reform one of the main objectives for his second term. He has vowed to reform the tax code, to make it "pro-growth, simple and easy to understand, and fair to all."
To this end, the President appointed a bipartisan panel to study the current outdated and unfair tax system and recommend changes. Change doesn't come easily in Washington and people are generally frightened by change, but in this case, change is absolutely necessary.
The current U. S. Tax Code is incomprehensible. No one understands every aspect of the code and even experienced tax professionals do not arrive at the same amount of tax due for any but the most basic of tax returns.
It is estimated that compliance costs drain over $200 billion per year from the economy and still millions of dollars of taxes due are never collected.
The granting of favors via the tax code is one of the major "duties" of Congress. A tax break here means a campaign contribution there. Some feel-good social engineering via the tax code today means votes tomorrow. Give special interest groups, their lobbyists and members of Congress enough time and their incestuous relationships produce the monstrosity of a tax code that we have today.
There is a better and fairer way for the government to collect taxes that will not only pay for government services but also promote economic growth and eliminate Washington tax engineering - the Fair Tax.
There is not enough space here to present all of the details of the Fair Tax, but briefly, the Fair Tax is a national sales tax that applies to the retail sale of goods and services. The income (both personal and corporate), payroll and inheritance taxes would be eliminated under the Fair Tax.
The first thing that comes from the mouths of the opponents of any sort of tax reform is that any change will hurt the poor and benefit the rich. In this case, they are half right. The Fair Tax would, with few exceptions, benefit everyone - rich and poor alike. The exceptions? Congressmen, lobbyists, tax attorneys and accountants.
Low-income families would be protected in two very important ways. First, everyone would receive a payment each month equal to the tax that would be paid on goods and services up to the poverty level. This payment would be made much as Social Security payments are made to retirees today. Low-income families would effectively not be taxed on the necessities of life.
Second, the highly regressive payroll tax would be eliminated. Currently, every working person is taxed 6.2% of his or her wages or salary with their employer paying an equal amount, up to an income threshold (presently $90,000 per year) and an additional 1.45% by both the employer and employee with no income limit. Those earning $90,000 or less per year are effectively paying 15.3% (counting the employer's portion which could otherwise go to the employee) right off the top. When income tax advocates talk about eliminating low-income people from the tax rolls, they never talk about the 15.3% haircut that low-income earners receive every payday. The Fair Tax puts that hard-earned money in the pocket of every worker.
The second thing that those that are uneducated on the Fair Tax screech is that prices for goods and services would skyrocket if a national sales tax were added to the sales taxes already collected in 45 states. It is very important to understand that upwards of twenty percent of the cost of retail goods and services under the present system represents the embedded taxes in the production chain. That is, the corporate income taxes and payroll taxes paid along every step of production are reflected in retail prices. When these taxes are eliminated, the final cost to the consumer of goods and services will remain essentially unchanged under the Fair Tax.
The Fair Tax would dramatically increase the competitiveness of American products in international markets thereby fueling economic growth. The Fair Tax would put 100% of your paycheck in your pocket. The Fair Tax would broaden the tax base - visitors to the United States would pay and the millions of dollars if ill gotten gains that escape the income tax in the underground economy would be taxed. The Fair Tax is, most of all, fair! No preferences. No loopholes. No tax breaks for some but not others. No paperwork to file.
The Fair Tax is not some pie-in-the-sky dream. The Fair Tax has been introduced in both the House (H. R. 25) and Senate (S. 25). The Fair Tax could be the most important piece of tax legislation since the Boston Tea Party, but it will NOT happen without citizen education and input.
Radio talk show host Neal Boortz and Congressman John Linder (R-GA) have recently written a book, The FairTax Book, which describes the details of the Fair Tax. The book is available on the Americans for Fair Taxation website [1].
Learn about the Fair Tax and then make your voice heard in Washington. Every voice counts. The Fair Tax can become a reality but only if every American that believes that there is a better way calls or writes their senators and congressman and make it abundantly clear that the status quo is no longer acceptable. Take the time to make that call or write that letter in support of the Fair Tax. It is now or never.
I'd be intersted in facts, but initial response would be "as opposed the current system that creates no black or illegal markets , no tax evasion? Isn't there real problems with any tax system in that some people will find ways to exploit. Would the problem created really be bigger than what we already have?
The Flat Tax has been a resounding success everywhere it's been tried (Ireland and Russia are two examples).
Do you mean the same Flat Tax that has been touted by politicians in the country, that is the same wage tax coupled with a subtraction method VAT to replace our current income tax system while leaving the 15.3% SS/Medicare tax in place?
You now, just one step from the credit/voucher VAT with flat wage tax plus payroll taxes of the EU?
http://www.taxfoundation.org/foundationmessage03-00.html
"Under the WTO definition of the term, a sales tax is an indirect tax, as is an European-style VAT. The economic equivalence of an European-style VAT and a subtraction-method VAT is well-established. A subtraction-method VAT is essentially identical to a business income tax except that all purchases of plant and equipment may be expensed, rather than depreciated as under current U.S. law."
Issue: What Is the Best Way to Collect a Value Added Tax?
A value-added tax (VAT) generally is a tax imposed and collected on the value added at every stage in the production and distribution process of a good or service. Although a VAT may be computed in any of several ways, the amount of value added generally can be thought of as the difference between the value of sales and purchases of a business. (e.g. Revenues - Costs = Taxable Business Income)
***
Subtraction-Method VAT. Under the subtraction method, value added is measured as the difference between a business's taxable sales and its purchases of taxable goods and services from other businesses. At the end of the reporting period, a rate of tax is applied to this difference in order to determine the tax liability. The subtraction method is similar to the credit-invoice method in that both methods measure value added by comparing sales to purchases that have borne the tax.
***
The subtraction method differs from the credit-invoice method principally in that the tax rate is applied to a net amount of value added (sales less purchases) rather than to gross sales with credits for tax on gross purchases. A business's tax liability under the credit-invoice method relies on the business's sales records and purchase invoices, while the tax liability under the subtraction method may rely on records that the taxpayer maintains for income tax or financial accounting purposes.
You are aware are you not the flat tax is a VAT with an wage tax. None other than the father of the flat tax, Robert Hall of Stanford University (along with Alvin Rabushka), in his 1995 Ways and Means Committee testimony said, "The Hall-Rabushka flat tax is a value-added tax."
Which was pointed out again in additional hearings in April of 2000:
http://waysandmeans.house.gov/fullcomm/106cong/4-11-00/4-11kotl.htm
"Robert Hall, one of the originators of the proposal(Flat Tax), who describes his Flat Tax as, effectively, a Value Added Tax. A value added tax taxes output less investment (because firms get to deduct their investment.)"
"The Flat Tax differs from a VAT in only two respects. First, it asks workers, rather than firm managers, to mail in the check for the tax payment on that portion of output paid to them as wages. Second, it provides a subsidy to workers with low wages."
The Flat Tax; Chapter 3, by Robert Hall and Alvin Rabushka
| In our system, all income is classified as either business income or wages (including salaries and retirement benefits). The system is airtight. Taxes on both types of income are equal. The wage tax has features to make the overall system progressive. Both taxes have postcard forms. The low tax rate of 19 percent is enough to match the revenue of the federal tax system as it existed in 1993, the last full year of data available as we write. Here is the logic of our system, stripped to basics: We want to tax consumption. The public does one of two things with its income—spends it or invests it. We can measure consumption as income minus investment. A really simple tax would just have each firm pay tax on the total amount of income generated by the firm less that firm’s investment in plant and equipment. The value-added tax works just that way. But a value-added tax is unfair because it is not progressive. That’s why we break the tax in two. The firm pays tax on all the income generated at the firm except the income paid to its workers. The workers pay tax on what they earn, and the tax they pay is progressive. To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following: Total revenue from sales of goods and services less purchases of inputs from other firms less wages, salaries, and pensions paid to workers less purchases of plant and equipment The other piece is the wage tax. Each family pays 19 percent of its wage, salary, and pension income over a family allowance (the allowance makes the system progressive). The base for the compensation tax is total wages, salaries, and retirement benefits less the total amount of family allowances. |
FLAT TAX, VAT TAX, ANYTHING BUT THAT TAX; Duke Law Magazine, Spring 96:
Forgive me if I'm wrong, but wasn't our very own income tax system origianlly supposed to be a "flat tax"?
Just got my copies of the fairtax book, signed by Neal tonight!!
Met some good folks at the book signing too. There was a pretty decent crowd, and those books are flying off the racks.
Would the problem created really be bigger than what we already have?It would be easier to cheat.
Importers flooding flea markets from across the open borders. No individual audits, no requirement to produce a worthless receipt for proof of purchase/tax paid and every crook and crooked business knows it. Add to that the phoney rebates to every household in the country with a SS# (and we know there aren't any phoney SS#'s out there).
Then add 50 different tax administrators and you have major problems brewing.
..."The current national sales tax proposal suggests that the states should administer the tax because of their previous experience administering a sales tax. Just because a state has experience, does not mean that it is good at what it does. There are states that are great administrators and states that are very poor.BTW, at what point does a state employee administrating/auditing federal taxes NOT become a federal employee?...At what point will they NOT meld into one big tax police state?It would be simpler to have all administrative responsibilities fall under the Sales Tax Bureau than under the 45 states that currently impose a sales tax. Imagine the IRS administration problems under 45 different roofs. It would be best to have one organization responsible for administering the tax and to make sure the individuals in that organization are well educated and trained. If there were several agencies administering the tax, the administrative controls would be significantly diluted. In addition, for businesses operating in more than one state, there is confusion as to which agency would have control over the returns....
Importers flooding flea markets from across the open borders. No individual audits, no requirement to produce a worthless receipt for proof of purchase/tax paid and every crook and crooked business knows it.
The audits would occur when a purchase is made and documented with the items and tax itemized on the receipt just as it is currently.
Add to that the phoney rebates to every household in the country with a SS# (and we know there aren't any phoney SS#'s out there).
There will be phoney SS#s in any tax system. The monthly rebates won't be phoney once people start receiving rebate checks.
>Then add 50 different tax administrators and you have major problems."The current national sales tax proposal suggests that the states should administer the tax because of their previous experience administering a sales tax. Just because a state has experience, does not mean that it is good at what it does. There are states that are great administrators and states that are very poor.
There will not necessarily be 50 different tax administrators. A state can choose not to collect the federal sales tax, and either outsource the collection to another state, or opt to have the federal government collect it directly.
Putting together the information in Tables 1 and 2, we discover that an NST with no rebate could collect the same amount of revenue ($803 billion) as the current income tax regime with a tax inclusive rate of 11.8 percent, as shown in Table 3. This tax inclusive rate with a rebate to fully protect the poor from the tax (as discussed below) would bring the rate to 14.2 percent. Throughout this study we use a rate of 15 percent, which would offset any losses from tax avoidance beyond the amount that occurs with the current income tax.Why is that?
FairTax bump
Congratulations! Where was the book-signing?
The audits would occur when a purchase is made and documented with the items and tax itemized on the receipt just as it is currently.What receipt?
Customer: How much is that...?
Business owner: It depends. Do you need a receipt?
Customer: NO! What good is it?
Tampa.
You have just shown yourself, once again, LurkeyLooneyLiarLou, to be the complete mental midget idiot those of us on these tax threads have always known you were.
Burton and Mastromarco were writing (in 1997!) about the Schaefer/Tauzin NRST legislation, which was decidely different FRom the Fair Tax, in that it did not replace Social Security and Medicare taxes as the Fair Tax does.
That is why the rate is lower, Dummy!
Go play on another thread and leave the serious discussions to those who are capable of reading and comprehending the English language!
A belated welcome to FRee Republic, Man50D.
The article in question was written in 1997. The Schaefer/Tauzin legislation (H.R. 2001) did not replace Social Security and Medicare taxes, (however it did replace federal excise taxes -- which I think is a good thing) and had a different method to ensure that the necessities of life were tax-FRee.
That is why the rate is different.
Thanks for the greeting. I also noticed the rebate would be provided as a refundable credit against the payroll tax instead of the taxpayer receiving a rebate check. Payroll tax? This plan obviously doesn't eliminate all federal taxes. That defeats the purpose of a national sales tax.
I took the time to read the book that Neal put out..
I like it.. but it finally proves to me the one fear I already had when I first heard about the Fair Tax plan.
What happens when the tax rate is set to high? Neal's answer was that the people should vote the elected officials out.
He is absolutely correct. But sadley.. the majority of the American Public are politically weak.. They do not care what the politicians do to them. Unlike us here on the Freerepublic.
My mother (84 yrs young) is the type who says.. "what can you do? nothing!" approach.. She was around when Social Security came about.. the New Deal etc. Sadley.. my parents were always democrats.
My cousin told me the other night that he does not even know what party he is registered too.. and does not care to know until he goes and votes.. He is politically active and has conservative views.
But most of the public are oblivious to what happens in Washington. Many of them are like sheep.. they actually think that the politicans are looking out for them like parents.. its sickening to watch.
I am not against the fair tax.. but I know the political reality is that the public would allow the politicians to ruin a good thing.
You are most welcome.
Well, at the time that the Schaefer/Tauzin legislation was introduced, the argument was put forward that SS/Medicare reform coupled with tax reform was "too big" to do; i.e., too much change all at one time. So SS and Medicare were not included.
Good arguments were made by thoughtful people, economists and politicians alike, for including/not including SS and Medicare, and the do not include argument won the day.
The manner in which H.R. 2001 ensured that the necessities of life would be tax FRee was a stroke of genius, IMHO. Basically, every wage earner continued to pay SS and Medicare tax, but their monthly tax was reduced a certain amount, based on family size.
The details are not important, but the precept was the same as the Fair Tax precept: No tax on the essentials of life.
I liked the idea, because it would reinforce the idea that savings accumulate much, much faster when they are tax FRee, and the feeling was, generally, that the American public would, in short order, figure out what a scam the SS/Medicare programs were, and demand that they be privatized.
I can only respond in this manner: Eternal vigilance is the price of Liberty.
We must keep on pressing our FRiends, neighbors, relatives and business associates to get "into the game."
Otherwise, we are doomed.
Burton and Mastromarco were writing (in 1997!) about the Schaefer/Tauzin NRST legislation, which was decidely different FRom the Fair Tax, in that it did not replace Social Security and Medicare taxes as the Fair Tax does.These are the authors of the Fairtax you're referring to right?...
Other than increasing the rate to make it MORE likely to invite cheating, how does replacing the SS and Medicare taxes change potential avoidance/evasion problems?
Burton and Mastromarco are the authors of the Fairtax. Whatever Congressman or radio host wants to put their name on the nst changes nothing about avoidance/evasion.
BTW, speaking of idiots and mental midgets. What kind of moron opposed to the income tax would tag themselves with a name that has such negative connotations as "Taxman"?
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