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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Ask any person how much a 23% sales tax on that shirt would be they will give you the amount using the 23% as an exclusive rate, not inclusive. That's where the deception comes in.
You set up a straw man so that you could knock it down. It was you that deceived the person by suggesting that they use the 23% figure when applying it to a purchase rather than the 30% exclusive figure. When the 23% directive is not given the person will naturally use the 30% exclusive figure. You've been BUSTED! ...again. Plus, you steal my tag line.
Naw - but he's probably in the top ten someplace.
Zon: People naturally use both terms-- inclusive and exclusive. Thus they easily grasp the differences and similarities.
Ask any person what percentage of their income they paid in federal tax and they will give you the tax inclusive percentage. Ask a person how much of their income went to paying taxes under the FairTax and they will give you the tax inclusive percentage.
Ask any person how much tax they paid on the shirt they bought and they'll give you the tax exclusive percentage.259
right. good we agree.
i stated such in post 212
You stated your opinion on a non-problem.
I would not tax people who would never see the benefits. That's just further down the road toward socialism.
Socialism is forced, not voluntary. A person is not forced to pay the FairTax, A person chooses voluntarily what to purchase and thus can chose to purchase items that are not subject to the FairTax. A person could arrange their purchases so that they paid no FairTax.
A person could choose voluntarily to not get the monthly prebate. A person could arrange their purchases so that the amount of tax they paid was no more than the size of their prebate. A person could chose to pay a little more tax than the prebate covers or chose to pay much more than the prebate covers.
People vacationing in the U.S. are protected by the Federal government for the duration of their time in the U.S. They will pay the FairTax and get none of the social security benefits. According to your statement above you would not tax foreign vacationers or tax them only for government protection services but not social security benefits they won't receive. Ditto for illegal aliens that aren't eligible for social security benefits. That appears much to me as maintaining the status quo.
Side note: Under the FairTax I will not be signing up for the prebate nor social security benefits. I'll pay much more FairTax than the prebate would cover. I choose voluntarily to regain my financial privacy.
The greatest benefit of the FairTax is a substantial move toward freedom. People in the U.S. are not free but would be much closer to it with the implementation of the FairTax.
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.
Fair tax is dead because there is a likely majority of citizens (even some who've died, are in jail, and perhaps illegal) are living off the rest of us. The situation will not fail because we (conservatives) do not have enough of a majority to overwhelmingly force this on them.
All that is happening now is that Neal Boortz is getting richer off the book and John Linder is gaining support and donations from whence he might not have before.
I agree the tax system needs to be overhauled but it will not happen in my lifetime.....
Betcha a quarter you're mistaken.
No try reading the book. It is revenue neutral... In other words you will have the same buying power as you do today.... The advantage is that its transforms the wealth of this nation back to the people from the government..
We'll see, but I say it's DOA.....I'm hoping it comes to pass, though....
Yeah...we should just give up now....LOL!
C'mon......tell me who was worse than LBJ!!!
PM me if you don't want to blurt it out.....mustabeen a Pubbie????
LOL! Yeah these guys just seemed dam set on not listening to a single point. However, you notice these clowns would never come to face to face Fair Tax debate. They are the same type of clowns that would defend a person caught in the act.... There is point... They are partisan hacks...
I estimate four years at most. You best get on with your life goals. :)
"LOL! Yeah these guys just seemed dam set on not listening to a single point. However, you notice these clowns would never come to face to face Fair Tax debate. They are the same type of clowns that would defend a person caught in the act.... There is point... They are partisan hacks..."
i personally resent the implications made here. why is questioning the fairtax proposal not allowed? why do the attacks when discussion fairtax get personal and snide?
i seriously was/am on the fence. i'm leaning against it in part because very few here at fr can defend it without either going off on terminology tangents or making personal attacks.
i really don't understand that attitude towards something some important. agree to disagree and stop the name calling because you lose people who are on the sidelines watching the discussions. i say that from the perspective of one who used to only read the threads and not participate, from an outsider's perspective it is very easy to identify who is attacking and who is being attacked.
people can honestly hold different opinions -- and they can even view something as being deceptive, while it is not to someone else. that might indicate a problem with perception, or with presentation, or a real problem to the concept. but to argue againt an individual in such an offensive manner suggests an indefensible religion.
i started asking a few questions a while back and just by asking them i've been accused of opinions and ideologies that i've never personally heald... just looking for a rational discussion. not to be found here on fr, and not because of the ones questioning or being critical.
Yep. Close enough.
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.
This is where it unravels. You're assuming that the money going to the states (or staying with them) is going to the state instead of the feds. That's wrong.
That's what "revenue neutral" means. Don't be an ass.
Well, you have got it mostly right. Ass.
Right. So this 11 trillion that is offshore is NOT part of what the feds are getting. When it comes back, the revenue it generates will be over the revenue neutral amount planned.
Freedom calls is being an ass.
That is not directed toward you at all... I am talking about three other users on here. This is the only subject they disgust on Free Republic... None of this is geared toward you.... I have debating these three guys for about a year now. So no it was not directed toward you..
The ploy of "I'm really 'for/was really for/would be really for' the FairTax if it weren't for 'insults/unanswered questions/bad language/personal attacks'" has been tried many, many times by those seeking to defend the Status Quo and oppose the FairTax. One recent user of it was RobFromGA who assured everyone that he was really neutral and might very well be a FairTax supporter if he could get but 'just one more question' answered.
Turns out, of course, this was nothing but deviousness no his part and he was all along a supporter of the Status Quo (which he has now admitted). If you expect FairTax supporters to be taken in by this tired old trick you're losing your grip on reality.
And if you read that as some sort of personal attack, you're gravely mistaken.
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