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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"For most people, 'fair' cannot be defined without injecting their own personal bias. If they come out ahead, it is 'fair'."
I don't know that that observation is true for the population at large, but it certainly appears to be the case for the SQLs. In fact, I have heard callers in to Boortz say that they support the FairTax even though they believe that they personally will be paying more in taxes. In contrast, Always Right (one of the leaders of the SQLs) posted on a previous thread that he would support the FairTax if he could figure out a way to game it to pay less in taxes. This is in spite of the fact that he refuses to acknowldge any of the obvious and significant advantages in economics and liberty that it offers.
when you say something about a fellow freeper you should ping them to your post.
AR- see #160
That sounds like a complete misrepresentation of anything I ever said. I am really not worried about taxes I would pay. I am much more worried about the 30% tax I have to charge my customers when they buy a house.
Thanks for the ping. I can't imagine where phil gets some of his stuff from. Well I guess maybe I can.
in a separate discussion thread i brought it up as a question. "is the social conservative engineering of the current tax system in any way positive compared to the more liberal social engineering of the flat tax?"
even here on this thread i did not state that i thought it was the government's responsibility -- i'm just bringing up factual differences.
personally, i do think from a broad, long term perspective that it is good for society to perpetuate itself. it is also good for the economy for the population to continually increase. so, no i do not have a problem with a gov that wants to promote families via tax breaks.
It's a lot different than today and you've given many numeric examples showing this. A $100 sale presently under the illegal economy geneerates $3.75 whan a purchase os made by the illegal using the legal economy whereas with the FairTax, the tax revenue is $23.00 (not $3.75).
That's hardly "exactly the same". the argument never was about taxing the illegal sale producing the illegal bux - that by definition is not taxed under either system (that;s why it's called "illegal").
LOL, so you are saying there is only 3.75% embedded taxes in goods and services. So when you eliminate the current taxes, the price will only come down less than 4% before you add your 30% tax. Thanks for the today's info.
Your horseback estimate of what you think are embedded tax costs are not that at all. You're merely looking at tax revenues overall and also using GDP as a percentage base. Those techniques both lead to invalid judgements.
The taxes embedded in prices are those embedded as costs into the prices of goods and passed from level to level cascading as they go - increasing at each level by being multiplied within the next level (whereas taxes paid by the entity are not passed forward but paid at that level). That is greatly more than taxes paid from each entity in the chain. In addition, basing taxes as a percentage of GDP gives a further unrealistic result since taxes are paid by profits subject to tax times the marginal tax rate. These also are different that pretending taxes are calculated somehow as a percent of GDP. They aren't.
If a certain amount of money currently goes to the Feds, and if your NRST is revenue neutral, then after implemetation the same amount will continue to go to the feds. If it goes somewhere else, like to the states, then it's no longer "revenue neutral" as the feds aren't getting the same revenues. That's what "revenue neutral" means. Don't be an ass.
Not so. The effect of removing the 3,101 from the present system is virtually a hidden tax that people pay in prices that are higher than they otherwise should be. The funds from that are taken from the Gross income under the present system but thy are NOT added to the gross income under the FairTax.
The effect under the FairTax is, as show in the original table to furnish the same gross income as before plus the prebate, resulting in the $14,413 spendable, The charts you have modified to present in your post illogically remove the hidden tax amount of $3,701 which is taken from the after tax wages of the worker in your first table and then to pretend in the second table that that amount somehow ends up as spendable income under the FairTax which it clearly does not.
Both of your tables are incorrect and show a false picture of the situation since the hidden tax never is spendable (in-hand) money after the FairTax except for the effect of reducing prices as I originally explained. The worker can spend no more than the $14,413 of spendable income under the FairTax.
The manner of presenting the table in the FairTax website shows this effect and it is a correct manner of presentation as just explained.
No, it isn't. The illegals do not pay a "22% tax" as you incorrectly claim. They pay prices that are higher than they might otherwise be (whether 15, 20, 25% or other) but the only taxes paid are on the profits from the seller times his marginal tax rate. If that price is higher by 22%, the only amount paid as tax by the illegal in that transaction is not 22% but the merchant's profit times his marginal tax rate.
In several past posts that has been shown to be far less than the 23% FairTax rate that would be paid with the FairTax. These illegals will benefit just as will everyone else by reduced prices when income taxes are done away with, but they will still pay more in tax than they do at present when they pay almost nothing and easily evade the income tax.
You want to talk anti-large family???
Then let's talk about the existing tax code.....
Take a gander at this case: http://www.kscourts.org/ca10/cases/1999/04/98-9035.htm
The above case affirmed the decision of the Tax Court.
The FairTax is not anti-large family. The prebate increases as the size of the family increases. It does not subsidize or penalize...it is merely neutral with respect to each additional dependent.
Seven friggin years and you are still clueless as to what embedded taxes are. Embedded taxes are much more than the tax on the retailers profits. They are all the federal taxes of workers and businesses that played a part in production and distribution of the product. That is how Jorgenson came up with 22%. You keep playing hokey pokey with what embedded taxes are to fit whatever phoney analysis you are working with at the time.
http://www.fairtax.org/tax_returns_single.html
clearly shows -3,101 being taken away from the individuals income/eic under the 'current system'
whether it represents the hidden taxes on the business paying the individual or the hidden taxes on the goods the individual is buying is unimportant.
it is a made up number that does not exist in reality today. i could instead argue that it should only be 2500 or 2200 or 2900 or 1400 -- it doesn't matter. but it is important to note that even using their methodology if i come up with a lower slightly number than the one they picked, the person is worse off.
day one of fair tax is not going to see either prices drop 30% or income go up 30% and to pretend it is all just going to be a nice equal transition and everything will work exactly as predicted is nonsense.
SOME people use after tax money presently to buy drugs, but many of them use illegally-obtained funds to do so (and are thereby themselves part of the illegal economy).
As has been explained many times the illegals are not paying the tax rate of however much prices are raised by, but only a small oportion of that representing the merchants profit times his marginal tax rate.
And the prebate is not a gag prebate. It's quite real. And as it says in the bill all valid US citizens with a SSN are eligible to receive it, not incarcerated, etc. (as specified in the bill). If the illegal qualifies on those terms (and many won't) they are eligible under the law.
A tax free investment is tax free Looey, but I thought you kneew that. If "everything they own is stolen" as you say then someone has probably already paid the tax on it.
One might also point out many "gross exagerations by the fair tax opponents" along with many, many outright lies.
And since you now change to say there are positive effects of the FairTax, why is it you never admit to those but continually attack it?
The inclusive rate is just fine Looey. YOU are deceitful.
Doc Robinson's
Snake OilVENDOR #53098432
12/6/2005
Snake Oil, 12oz. Economic Study of FairTax Magic Potion Subtotal NRST @ 23% NRST Inclusive Subtotal State Sales Tax @ 8.25% TOTAL SALE
Now, the way is should be:
Much easier to understand when you aren't trying to hoodwink people into believing they are paying less in tax as a percentage than they really are.
Doc Robinson's
Snake OilVENDOR #53098432
12/6/2005
Snake Oil, 12oz. Economic Study of FairTax Magic Potion Subtotal NRST @ 29.87% State Sales Tax @ 8.25% TOTAL SALE
You should spend more time researching the bill itself, the FairTax website and reading these posts more carefully.
What is said is not that the illegals pay NO tax presently, but that the amount they pay falls woefully short of what it should be either as income tax OR in any amount that represents tax on the things they presently buy legally.
It is that they pay almost none or at least far, far less that they should be paying. Under the FairTax, these illegals will be among the big losers.
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