Posted on 12/05/2005 2:36:33 PM PST by Eaglewatcher
Imagine if all of these trillions of dollars were added back to the American economy. On top of that, imagine saving the $500 billion compliance costs every year. These two things would give a huge boost to the American economy. Fortunately, there is a plan to make this happen, a plan sponsored by Georgia Representative John Linder. The plan is called The FairTax, or H.R. 25. Part II of this paper will describe The FairTax.
Officially called the FairTax Act of 2005, the FairTax would do many things to simplify the way Americans pay taxes, including completely abolishing the Internal Revenue Service. The FairTax would replace many of the taxes Americans pay, including the individual income tax, the alternative minimum tax (AMT), corporate and business income taxes, capital gains taxes, Social Security taxes, Medicare taxes, the self-employment tax, estate taxes, and gift taxes (Boortz 74-5). The elimination of all of these taxes would allow workers to take home all of their paychecks. No withholding and no income taxes. That's right, people would get to choose when they had to pay money to the Federal Government, and that would be at the retail counter. Their money would not be forcibly taken from them.
Notice the word replace in the paragraph above. Many politicians tried using scare tactics in the 2004 election, telling the people that their opponents who supported the FairTax would be adding the FairTax on top of all those other taxes. This is simply not true (81-2). The FairTax would replace all of those taxes. The FairTax is neither a tax cut nor a tax hike, but an alternative method of gathering revenue for the Federal Government (75). Remember the 22-cents-out-of-every-dollar embedded taxes described in Part I of this paper? Take all of those taxes out, and institute a 23-cents-of-every-dollar consumption tax, and the prices of goods and services haven't changed much.
What is the FairTax? The FairTax is a proposed national consumption tax on new goods and services at the retail level. Only new goods are included for two reasons: First, goods should only be taxed once, not every time they change hands and second, taxing only new goods keeps things simple. Imagine the bureaucracy that would be needed for all people to keep track and correctly file their taxes whenever they sold their car, etc. We are trying to move away from all of that complexity!
In Part I of this paper, I mentioned the IRS tax code and how it exceeds 54,000 pages and 2.8 million words (Americans for Fair Taxation). Ordinary Americans do not have the time to interpret this abomination called the tax code. We have to pay others called CPAs (Certified Public Accountants) to do it for us. Think about this: we have to pay people money in order to pay the government money. How ridiculous! With the FairTax, businesses would just collect the consumption tax at the time of purchase, much like they already do in states where there is a sales tax. This saves time, and money. Americans will be paying the same amount of taxes, while not having to pay CPAs. More money in the pockets of Americans (generated by not having to waste time and money with CPAs) means that Americans will have more money to spend on consumer items, and thus will be creating even more tax revenue! Additionally, those 5.8 billion hours (Boortz 43) that I mentioned earlier will be spent on producing. When Americans as an aggregate spend 5.8 billion hours trying to pay the Federal Government money, they are not at their jobs or at home doing anything truly meaningful. They are, in essence, wasting time. With the FairTax, and without the IRS, those 5.8 billion hours would add to the economy, generating more income for people to spend, which would then generate more revenue for the government. Those hours would also allow for more quality of life, giving parents more time to spend with their kids, etc.
While companies are forced to make tax-decisions they are hindered in making economic and capitalistic decisions. Eliminating the income taxes, both personal and corporate, and instituting the FairTax would help businesses. This is especially true of small businesses.
"President Bush recognizes that supporting America’s small businesses is critical to ensuring continued job creation. Small businesses create two-thirds of new private sector jobs in America, employ more than half of all workers, and account for more than half of the output of our economy." (The White House)
Small businesses employ more than half of all workers and generate more than half of our economy. Wouldn't it make sense to help small business owners? Help them out, and what do you get? More employment and an extended production possibilities curve. What kinds of things hinder small businesses? Taxes, and more specifically, personal income taxes and self-employment taxes. Because small businesses are small, the owners typically pay taxes on the personal level or as small corporations. Because they are small, these taxes hit them much harder than they would a larger corporation. Eliminating these costs would allow all businesses, small and large, to focus their attention on producing goods and services, generating wealth for themselves and taxes for the government.
More people would be subject to this tax as well, thus generating more revenue for the government (I keep mentioning more revenue for the government; I know that the government needs to greatly reduce its spending, but that's another argument for another time). Who else would be paying into our tax system? Illegal immigrants and tourists. Think about it, under the current system, neither pay income taxes or Social Security taxes anyway, because illegals don't want to get caught, and tourists don't work here. With the FairTax, they would pay into the system with every purchase they made at the retail level. Some people dislike the idea that foreigners should pay into out system, but I don't and here's why: if they want the privilege of being in this country (whether working illegally or visiting legally), then they should contribute. Don't think for a minute that Americans don't pay Germany their Value Added Tax (VAT) when we buy their products.
The FairTax would also tap the large shadow economy of the United States. Whenever you buy the services of a landscaper, maid, house painter, or hot dog vendor, and you pay them in cash, it is not likely that they are reporting most if not all of that income, and this is known as the shadow economy. That income escapes the clutches of the Federal Government, but is that really fair? If you have to pay taxes on your income as a college professor, but I don't pay taxes on my income as a theoretical house painter, is that fair? The answer is no. Under the FairTax, we both keep all of our income, and pay taxes at the cash register. In his book, which I have cited often in this paper, Neal Boortz cites a 2000 survey claiming that the “shadow economy accounts for more than 10 percent if America's GDP. . .†(93 *). Maybe that kid who mows your grass doesn't pay an income tax on the money earned by his services, but he'll pay the consumption tax when he buys a new video game at Blockbuster.
Many jobs are sent overseas when American companies take their corporate headquarters and manufacturing plants there. Why would they move away? Under the current tax system, businesses are burdened by the regulations and costs associated with compliance. How much money is overseas? “[T]he 2000 Merrill Lynch & Gemini Consulting study World Wealth Report estimates that one third of he wealth of the world's high-net-worth individuals is held offshore. How much would that be? Try $11 trillion - $11 trillion sucked out of the American economy, all of it immune to the tax obligations you suffer every April 15†(Boortz 97). Think about the size of that number. $11 trillion is enough to give 11 million people a million dollars each. This $11 trillion is not in the American economy. This $11 trillion is not producing jobs in this country, nor is it investing in capital or technology in this country.
Let's start putting all of this together, assuming that the IRS has been abolished, and the 16th Amendment has been repealed. People get to take home their whole paycheck every week or two. Their employers can hire more people because they have more money and a higher production possibilities curve. The cost of goods and services stays about the same as before because the 23% consumption tax is about the same as the previous 22% embedded tax (that most people don't even know they were paying). The shadow economy is drastically reduced. Additionally, businesses from overseas begin to come home to this relatively tax-friendly environment, bringing with them even more jobs and capital. Sounding pretty good so far, right? Now for the Grand Finale: The Prebate.
Lyndon B. Johnson launched his War on Poverty in the mid-1960s, and so far, not much has happened. Let's try a new War on Poverty: The FairTax. With this newly implemented FairTax, lower-income workers are already getting to keep their whole paycheck. Most of them never paid any appreciable amount of income taxes, but now they are not having to pay withholding taxes either. They have more money in their pockets. Goods and services cost about the same as before, so already these lower-income workers are doing better than before the FairTax. Let's help them out even further. H.R. 25, or the FairTax, provides for a prebate on the basic necessities of life. A prebate would be a check from the government given monthly to all working Americans to cover their costs of taxes on essential goods and services at the poverty line. That's right, the government would give Americans, and we'll focus on lower income Americans, a check to cover the taxes needed to pay for food and shelter up to the poverty line (Boortz 85).
Think about this for another minute, not only would lower-income Americans have more money in their pockets, but the cost of taxes on goods and services (the bare essentials) up to the poverty line would be eliminated by this prebate. This would essentially lower the prices of these goods needed by lower-income workers. Here's how this all flows out: 22% embedded taxes are eliminated, 23% sales tax is implemented, all Americans receive checks to cover this 23% up to their determined poverty line, lowering the costs yet again. The combination of more income and lower costs would greatly increase the purchasing power of lower-income workers, and would do wonders for the anti-poverty movement.
The FairTax would allow all Americans to keep their whole paycheck, while cutting taxes on goods and services up to the poverty level. The FairTax would eliminate $500 billion of waste every year, putting 5.8 billion hours to better use. The FairTax would tap the purchasing power of both illegal workers as well as perfectly legal tourists. The FairTax would greatly reduce the shadow economy in our country. The FairTax would bring back $11 trillion to our country. The FairTax would utilize all of this to generate more money for the Federal Government. The FairTax would grow the economy and help lower-income Americans. The FairTax is “about making April 15 just another beautiful spring day. . .†(Boortz XV). The FairTax Book by Neal Boortz and Congressman John Linder is a must-read, both informative and entertaining.
Bibliography Boortz, Neal & John Linder. The FairTax Book. New York: HarperCollins Publishers, 2005.
* “Friedrich Schneider and Dominik H. Enste, “Shadow Economies: Size, Causes, and Consequences,†Journal of Economic Literature, 38 (March 2000), pp. 77-114.†Cited in Boortz' The FairTax Book, page 93.
McConnell, Campbell R. & Stanley L. Brue. Economics: Principles, Problems, and Policies. 16th ed. McGraw-Hill/Irwin, 2005. Online. Americans for Fair Taxation. . Online. Tax Foundation. . Online. The White House: President George W. Bush.
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Yes, it was eleven. It seems to me that states without an income tax will get the biggest portion of the foreign corporations that build plants and headquarters in the US.
Maybe we shoul;d all move to TN, KY, NC, etc???
Or TX and FL?
Yup, those would be OK, too, especially since they have no state income tax already and will be a step ahead when the FairTax becomes law.
you can't have fallen into a trap that easily.
there certainly must be an exception to the used goods free pass when coming across a border -- other wise the amount of one day old used goods being transferred across the borders is going to be astronomical... if that loophole exists it certainly will be closed quickly.
anyways, let's end this silly tangent. just my personal opinion that criminals will be criminals and unless the government starts tracking people's purchase they will find some way to buy most of their goods w/o paying uncle sam.
I see no "trap" but I agree it's a silly tangent. I've never said and never would that criminals will not be criminals or that some will not try to evade the FairTax. That would always be true with any tax.
My point is that is will be much more difficult that it is at present with the truly massive evasion going on with the illegal economy under the income tax. there will be much less evasion than at present I believe. Much less.
I saw a headline today but didn't have access to an article. The headline was President Bush talking on the economy and tax reform. I was hoping an article about his speech would be posted on FR. Curious to know is he said anything about the tax panel's report or the FairTax.
Fair taxation is way less evaded. I think if it happens we'll see just how much revenue has been locked up in all the elite's fancy tax loopholes.
The leftist propaganda machine foundations and trusts should be cracked next.
Their bitchin in Hollywierd and Kerrycuntry will be music to my ears, those "patriots"!
We've been over this a hundred times and you still insist on the lie. It is exactly the same. You are not capturing one penny of the illegal economy. The drug dealer and prostitute are not submitting 23 percent of their gross sales to the government. They are evading just as much as they do today. When they buy things legally, taxes are paid. No different than today. But I know you will continue to make this false point.
Then what are they going to eat, where, drive, and live in? They have to spend it somewhere. The difference, is that whereas now, the government is out their entire tax payment from these people, with FairTax the government is only out the first derivitive. They will spend it. It will get taxed.
This is the primary point where we disagree.
Federal corporate income tax is about $184 billion (for FY 2004). Divide that among companies however you like, pass it back and forth between different layers of production all you want - it still adds up to $184 billion. That is only about 1.6% of the GDP. Add a little extra for taxes on sole proprietorships and partnerships and add a little more for the accounting and you are probably still under 3% of the average cost of an item for business taxes and compliance costs (unless you can convince me that compliance costs are a lot higher than I think they are).
The rest of the 22% embedded tax comes from the employers' half of SS and Medicare, the employees' half of SS and Medicare and the employees' income tax. The employers' half of SS/Medicare is eliminated by the Fair Tax. That leaves the part of employees' pay allocated to income, SS and Medicare taxes as the rest of the embedded tax.
For the average item you buy, the vast majority of the price is labor, not business profit as you assume. Therefore the largest portion of the embedded tax on that item is tax on labor. The only way to remove that cost from the embedded tax is to cut the amount paid for that labor.
`SEC. 510. TAX TO BE SEPARATELY STATED AND CHARGED.
`(a) In General- For each purchase of taxable property or services for which a tax is imposed by section 101, the seller shall charge the tax imposed by section 101 separately from the purchase. For purchase of taxable property or services for which a tax is imposed by section 101, the seller shall provide to the purchaser a receipt for each transaction that includes--
`(1) the property or services price exclusive of tax;
`(2) the amount of tax paid;
`(3) the property or service price inclusive of tax;
`(4) the tax rate (the amount of tax paid (per paragraph (2)) divided by the property or service price inclusive of tax (per paragraph (3));
`(5) the date that the good or service was sold;
`(6) the name of the vendor; and
`(7) the vendor registration number.
| Current system | FairTax system | |
| Gross income | $10,712 | $10,712 |
| Less payroll taxes | -819 | 0.00 |
| Less Federal income taxes | 0.00 | 0.00 |
| Plus Earned Income Tax Credit | +4,204 | 0.00 |
| Add the prebate family allowance | 0.00 | +3,701 |
| Spendable income | 14,097 | 14,413 |
| Federal sales tax | 0.00 | -3,315 |
| True after-tax purchasing power | $14,097 | $11,098 |
Here is what there chart should read if they want to use their number properly.
| Current system | FairTax system | |
| Gross income | $10,712 | $10,712 |
| Less payroll taxes | -819 | 0.00 |
| Less Federal income taxes | 0.00 | 0.00 |
| Plus Earned Income Tax Credit | +4,204 | 0.00 |
| Removal of the hidden tax passed along by your employer. | 0.00 | +3,101 |
| Add the prebate family allowance | 0.00 | +3,701 |
| Spendable income | 14,097 | 17,514 |
| Federal sales tax | 0.00 | -3,315 |
| True after-tax purchasing power | $14,097 | $14,199 |
parse words all you'd like but the only legitimate way to show the 'current system' taking away $3101 from the poor soul is to show it as being added in the new system.
in the current system the 3101 is not being taken away from the person's 10k income or their 4k EIC -- the way they show it is plain wrong aside from misleading.
Probably the same place they spend it today. And guess what, when criminals spend their money legally today, they pay that 22 percent embedded taxes. The only real way to capture the illegal economy is to actually collect taxes on the illegal activity. THis is not rocket science folks. Claiming you are taxing the illegal economy is a bold face lie.
The difference, is that whereas now, the government is out their entire tax payment from these people,The next time you drive through their neighborhood check out the fine houses and automobiles they own. Just think of all that sales tax money you'll be getting.
People use after tax money to buy drugs. Drug dealers pay all the embedded taxes you Fairtaxers claim are in everything they purchase now with the purcaser's after tax money....
Tax, tax, tax isn't that what you want?
With the Fairtax they won't remit taxes on their sales AND they'll all get a (gag!) "prebate".
They can then take their tax free ill gotten gains along with their (gag!) "prebate" and launder it in a "it's none of the government's business where your money comes from" tax free savings account.
BTW, practically everything they own is stolen so no tax collected there either.
Total $20.00
Federal Tax $4.60
Net to Seller $15.40
Same shirt. Same price. Example of tax receipt. Tax Exclusive.
Shirt: $15.40
Federal Tax $4.60
Total $20.00
These people are paying taxes to the Federal Govt right now when they buy those chains, jackets, and shoes. They are paying them in the form of embedded taxes37
Limited to products and service produced in USA. All "those chains, jackets and shoes" are not made in USA.
The FairTax will obtain ZERO revenue from the illegal economy. 38
Not all products purchased by people in the illegal economy are made in USA. Taxes embedded in the chain of production of imports are collected by foreign governments. The only US taxes imbedded in after-the-fact imports are in distribution, warehouse and retail store -- none from manufacturing.
Rep. Bill Archer, Chairman, House Ways and Means Committee:
"A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."
The large influx of new jobs, among other things, means the current trade imbalance (deficit) will balance out and likely tip to USAs advantage. In other words a greater percentage of "those chains, jackets and shoes" will be made in USA, thereby foreign governments will see their tax receipts decrease.
In order for foreign governments to retain their present level of tax receipts they'll have to replace their outdated, economy-draining tax systems with a consumption based sales tax.
The USA can lead the way to honest economic freedom and financial privacy the world over -- beginning with it's own citizens.
If anyone thinks the present outsourcing by American based companies, many of which are also building new manufacturing plants in foreign countries is bad now, it would be much worse if a major first world country beats USA to the punch by implementing a consumption based sales tax first. Also, that country would get the new jobs and USAs trade imbalance would widen.
It's not a matter of if consumption-based sales tax will gain dominance the world over, but when, and which country will lead the charge and which countries will play catch up.
The United States must take the lead.
Claiming you are taxing the illegal economy is a bold face lie.
You'll have to correct that error -- "a bold faced lie" -- after you read the post at 117.
Shirt: $15.40How did you arrive at $4.60 tax on $15.40 price?
Federal Tax $4.60
Total $20.00
Do you also predict the weather and earthquakes?
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