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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Since the VAT is a consumption based tax, I guess the US would be following the European lead in switching to a consumption based tax. I do agree that trade is one definite area where a consumption based tax has a true advantage. But the inflationary effects of the fair tax is ingored by its supporters. There are pros and cons to any tax system. The most important thing the US can do improve it is to lower the amount of taxes being collected. Coming up with a new way to collect the same amount of taxes, just trades off one set of headaches with another. Believe me, an honest analysis of the fair tax would show lots of negative effects along with positive effects. I just can't stand the gross exagerations by the fair tax supporters.
The $4.60 is correct amount of tax in both the tax inclusive (23%) and tax exclusive (30%) calculations. And you know that because it has been explained to you at least a dozen times on other threads.
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.
I read the post, I missed the part where you actually contridicted anything I said. The 22 percent embedded tax is an average of US taxes that in our products. Some have more some have less.
Yup. They eat Stolen food.
They drive Stolen cars
They live in Stolen houses
They wear Stolen clothes
They take Stolen trips on Stolen planes
They get Stolen diamonds inlaid in their Stolen teeth.
In fact they don't make any money at all, they just GIVE drugs away or barter, and since all those stolen goods are used goods they don't have to pay tax on those either.
At least everyone can now see that your arguments are all universally based in the same degree of reality.
If you are in favor of the Fair Tax make sure you go to Fairtax.org and sign the petition.
The $4.60 is correct amount of tax in both the tax inclusive (23%) and tax exclusive (30%) calculationsExcept how do you calculate the 23% without using the 30% and a better question is why would I want to?
...Suppose the inclusive rate was 23.375%, how am I, the consumer supposed to know how much money I need to make the $15.40 purchase?...
Using the inclusive rate for sales is deceitful...period.
As has been told to you several time on these threads, the tax inclusive rate is how income taxes are compared at different levels (tax brackets for federal and state income taxes), thus is the reason for using tax inclusive (23%) to compare the FairTax to the income tax. And, it has also been told to you several times that many and perhaps most sales tags will exclude the tax and leave the calculation up to the consumer who will use the tax exclusive rate (30%). As I said, you already know all of this. Yet you refuse to acknowledge the usefulness and utility of the 23% inclusive rate.
i really do want to stay neutral... but
"They eat Stolen food.
They drive Stolen cars
They live in Stolen houses
They wear Stolen clothes
They take Stolen trips on Stolen planes
They get Stolen diamonds inlaid in their Stolen teeth."
ok, so if they are NOT stolen are there not embedded taxes in those products? the only thing the irs is missing out on is income tax on their illicit business -- which they won't get under fairtax either.
a) fairtaxers claim that products contain enough embedded tax to make up of the difference in the proposed sales tax
b) then fairtaxers claim that the irs gets NO money from criminals and their operations - yet are buying all the retail products legitimately and will continue to do so
like my table posted previously... fairtax math just doesn't add up.
i keep trying to make it work cuz i like the idea. if they would drop all the 'fuzzy' math, stop using or properly note VERY IMPORTANT but risky assumptions, and generally be more honest then i might get interested again.
They drive Stolen cars Yep!
They live in Stolen houses Might as well be. I'll bet they're subsidized or the old lady's welfare pays the rent.
They wear Stolen clothes Yep!
They take Stolen trips on Stolen planes Oh yea, I can hardly find my way through the airport because of all the drug dealers there.
They get Stolen diamonds inlaid in their Stolen teeth.You're more up on their habits than I am. I only know what I see on shows like cops where due to their drug, use most don't have teeth to put diamonds in but that doesn't stop them from stealing diamonds.
I wouldn't doubt that for a minute.
And I bet you get your tax theory from the Disney channel too...
Yet you refuse to acknowledge the usefulness and utility of the 23% inclusive rate.The inclusive rate for sales is not useful to the consumer/taxpayer, it's deceitful...period.
Zon (Honesty outlives the lie, spin and deception -- It always has -- It always will.)You're a fraud.
And I bet you get your tax theory from the Disney channel too...I'm doing something right if that's the best you can do.
There's more truth and honesty on the Disney Channel than there is at the AFT website.
"refuse to acknowledge the usefulness and utility of the 23% inclusive rate"
what the heck.
anyways, it doesn't take too much common sense/logic/math to figure out that if you stop taxing corporation and shift the entire burden on to consumers (of which the middle and lower income consumers generally spend almost all of their income) that the overall tax burden on individual will go up.
the only hope that it won't lies in (a) rich people spending more of their money than they would have paid taxes on whatever income they have, (b) employers of the not so rich passing on the hidden tax savings so people will be able to spend even more money, and (c) the expected economic boom from expanding businesses.
bottom line is the gov needs X number of dollars to operate. right now that X comes from mostly the rich, some from corporations, and bits here and there from a variety of places. under fairtax the entire X is placed on the shoulders of consumers. fair? maybe, maybe not. that's all.
i'm all for cleaning up the tax system. eliminating the irs sounds great. but to say it would be fair is questionable. it most definitely shifts the burden away from the wealth holders. (i hate how liberal i'm sounding writing this but i can't get away from the math.)
Ask a person how much tax they paid on the shirt they bought and they will give you the tax exclusive percentage.
Your lies have exposed you on over a hundred occasions. Every time honesty has outlived your lies, spin and deception. You don't know what honesty is.
I think the APT Tax is better, but would support APT or Fair Tax, if we can get rid of the IRS.
Investing would be great because the double taxation would end.
what the heck.
www.fairtax.org. You should read THE FAIRTAX BOOK by John Linder and Neal Boortz. In it they explain how and why, under the income tax all taxes are paid by consumers. It also explains "what the heck" the meaning of tax inclusive and tax exclusive mean and how they are used. If you honestly want to understand the FairTax, you will succeed if you put forth the effort.
A family of 4 (married couple) with $50,000 income; all of it spent at retail:
$50,000 - $24,980 = $25,020.
FairTax on $25,020 = $5,755
$5,755 as percentage of $50,000 = 11.5%
Effective tax rate for a family of 4 (married couple) spending all of a $50,000 income at retail is 11.5%.
If so, your position is to retain the status quo?
Further, the bill intends to prevent taxes on taxes and says so implicitly. How can you be so ignorant?
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