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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And are you trying to make the argukment that the original owners of those things would not have paid the sales tax on them. Theft is theft Looey and I recall no one ever claiming that the FairTax would correct that - do you?
Why do you always have to be so dishonest when it comes to the Fair Tax Debate? Please tell me where in the Fair Tax book does it say it's a, "Free Lunch"? Those are your words not Linder and Boortz.Talk about dishonest. Can you show me where in RobFromGa's post he claims Linder or Boortz used the words "Free Lunch"?
Pointing out your outright lies and gross exagerations are not 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?
What change. I have admitted numerous time advantages of the fair tax. The biggest advantage is that it will make our exports more competitive, and it will also drive the costs of imports up. It is just a full time job trying to straighten out all your lies and exagerations.
Depends on how the shirt is priced, Looey. You merely assume that things would continue to be priced exclusive of tax. It is at least as likely that things will be priced inclusive of tax under the FairTax. There are some places where this is done even at present.
It is no lie, spin, or deception.
The only hope we have of getting private accounts is to unhook the SS wagon from the productive sector alone...and hook it to the consumption sector....which includes all.How is the government suppose to know how much I get in my private account if they don't know how much I paid into the system? Is this going to be another socialistic, income redistribution plan where everyone gets the same regardless of their contribution?
Regrettably, your employer still has to report your income. Your benefits will be paid on the basis of your earnings.
Under the fair tax, retirees who paid their whole lives into the system for their retirement, now have to pay for the retirement for younger generations too. I am not retiring anytime soon, but if I was, I would not be happy with that prospect.
You first have to show me where I am wrong.
In fact, everyone who is a legal resident of he US, has a SSN, etc, (see the bill) is eligible for the prebate if they wish it.
It is not based upon income level at all, but upon family size only. You can get it, and Bill Gates can get it, but you both pay sales tax at the same rate (as opposed to the poor paying nothing as you stated). All have a stake in the tax system in this way.
Read the bill itself and you'll see the income tax, the IRS, and the tax records all go bye-bye. Investments (or income) are not taxed at all.
Look at post 14 in this thread.....
Let me propose the "average item" which costs me $100 when I buy it. Assume it has a average profit, average taxes, average imported content and an average amount of labor. The FairTax book states that the average embedded tax is 22%, so that means that $22 of the item is embedded tax.
Now divide the $22 among business tax, tax compliance costs, employer's SS/Medicare, employee's SS/Medicare and employee's income tax. Also divide the remaining $78 among business profit, labor and imported content.
My estimates are
$78 non-tax consisting of
$ 8 business profit
$62 labor
$ 8 imported content
$22 embedded tax consisting of
$ 2 business profits tax
$ 1 tax compliance cost
$ 4 employer's SS/Medicare
$ 4 employee's SS/Medicare
$10 employee's income tax
$ 1 tariffs/customs
I have left out domestic "raw materials" because they consist of the price of the land plus the labor to dig them up and produce them and the profits for the companies doing it. I added the labor and profits to their respective lines and leave off the land price as being under $1.
Please, tell me where you think I am grossly wrong and what figures you would use for the source of the $22 embedded tax and $78 remaining.
Regrettably, your employer still has to report your income. Your benefits will be paid on the basis of your earnings.That's just my wages or salary (and you are assuming I am spending it all). What if I have a lot of income from savings and investments?
There is no state - or country for that matter - that has an identical sales tax definition to that of the FairTax. Does that seem "bad" to you ... and if so, why???
After the FairTax passe there will probably be a lot of states that conform to the FairTax definition ... and drop their sales tax rate dramatically due to that - along with eliminating their state income tax.
What is it you think is "doublespeak"? Sounds to me like you're just enamored with the present tax system.
I am not happy about it either....but it's reality.
The net present value of the unfunded liability exceeds the net worth of the country. We don't have a chinamen's chance in hell of paying all of the promised benefits.
Time to face the music. Like any pyramid scheme...those who get in on it in the beginning make out like bandits....and those who are in on it as it collapses get the shaft. No one in the political arena today has the cajones to tell the American people the unvarnished truth.
Tricky Ricky Santorum has introduced a bill to "guarantee" all the SS benefits for those born before 1950. (S.1750) If you read the fine print of the bill you'll see that it's a completely worthless guarantee...based only on Congressional authority to tax. Our supposedly "Conservative" leaders won't even speak the truth. It's a sad and disgusting state of affairs.
Just wages and salaries.
Look at post 14 in this thread.....I have and nowhere do I see RobFromGa claiming that the "Fair Tax book... say[s] it's a 'Free Lunch'" or that Linder or Boortz used the words "Free Lunch." Can you quote post 14 where you see these claims from RobFromGa?
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