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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large families have large expenses - medical, food, etc. and under the current system receive large breaks/incentives for such, not so under the fairtax.
yes they get their allowance (if they sign up for it, yet a separate problem i have with fairtax: it is one massive welfare system) but you have to trust that a lot of assumptions are correct to get the numbers to work. even then it doesn't for middle class medium to large families with large expenses.
no one answered my earlier post in this thread as to what that mysterious $2282 was to make THAT example work.
the best response i get is something like 'you just have to trust that the prices will come down like we say they will'
that said, i'm not completely against the idea of 'fairtax' (i think it is a doublespeak name though)
OK, so now you want me to make up a receipt? Surely you've read the bill and know what the receipt must show. It must show the total dollar amount of purchase and the total dollar amount of federal tax. Further, the amount of federal tax must be 23% of the total spent including tax.
What do you not understand?!
I guess this is the part where you start saying I don't know the difference between "of and on and...."?
yes they get their allowance (if they sign up for it, yet a separate problem i have with fairtax: it is one massive welfare system
What is welfare? Receiving large breaks/incentives or getting a refund of taxes overpaid?
`(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.""`SEC. 510. TAX TO BE SEPARATELY STATED AND CHARGED.
It's been posted to you many times Looey. Why do you waste everyone's time with something like that???
I wonder when he'll begin with the "tax costs don't have to be paid", and the "anticipated taxes and tax costs do not have any effect on prices" diatribe.
Total: $20.00
FairTax @ 23% $4.60
a) fairtaxers readily admit some could be getting more back than what they pay (which happens today with EIC, i know) but that makes it welfare
b) it is a liberal's dream to have every single family in the entire country on the dole of the federal government -- calling it a 'refund' makes it acceptable to conservatives. (the answer there is, well don't sign up for it)
the fraud/loopholes in today's system will just be replaced with a different type of fraud/black-market. which will quite large. the idea that criminal enterprises will be taxed under the new system because they have to participate in the consumer economy seems silly to me. yes it might pull in a bit of money from petty theives but criminals will be criminals and if they can figure out how to obtain a $100 item for $70 illegally they will do so.
the federal gov organization to ensure compliance with nrst laws will likely be the same size as the irs some day.
OK, so now you want me to make up a receipt?Can't do it without exposing the fraud can you?
I'll do it for you according to the letter of the law ("23% of the gross payments")
.$100 (before taxes)
+ 7% state sales tax
+29.87% Fairtax
Total $138.96 (gross payment)
"23% of the gross payment"=$31.96 or 31.96% (not 23%) tax. I guess this is the part where you start saying I don't know the difference between "of and on and...."?
You obviously don't.
FairTax is a tax on accumulated wealth. Those are the words of Rep. Linder. It would negatively impact almost everyone who has saved already-taxed monies, ie: regular savings accounts and Roth IRA's.
i want a line item that tells me how much of the money i just spent on a gallon of milk goes towards social security.
no one has been able to help me understand how it would be possible to 'privatize' social security AFTER fairtax was implemented.
this is another reason i call it a welfare/liberal dream -- implement this and you never ever have to solve the social security mess. when time comes that you need to pay out so much more just up the sales tax. (i know, the economic benefits of fairtax will be sooo outstanding that the gov won't know what to do with all the tax revenue i'm told.)
Not only would that become almost impossible, but the new FairTax rate would be calculated and become law each year based on a set of calculations which looked at how much outgo is forecast, and what the new FairTax rate needs to be to support it, without a vote. And we know who determines the outgo, right? The politicians buying votes.
Interestingly enough the name 'FairTax" was chosen by the various groups of people that the originators of the FairTax polled to obtain their ideas about the tax system (and its name). The name that came from this polling was 'FairTax'.
Not all large families receive aid under the present systm - many are just hung out to dry and any aid is unevenly applied to different groups. Man even have 'hoop-jumping' to do to obtain the aid - for example, some have to file an income tax return even if not otherwise required to do so even if they owe no tax.
It looks to me like most large families overall would be more greatly helped by the prebate in the FairTax than any of the present welfare schemes - and the prebate is not welfare but merely a refunding some or all of the tax you would pay. Welfare has no corresponding operation.
Actually, there's nothing "mysterious" about the number you questioned in your earlier post where you assumed part was from matching payroll taxes. Actually I think little or none of it is from that. There have been examples given many times on these threads that show the mechanism of cascading, embedded business income taxes and how they increase prices to the final consumer. There is ample room in this mechanism for prices to be reduced substantially - and when compliance costs are added also, the price reduction would be both real and noticeable.
FairTax opponents, of course, fight bitterly against this as a possibility claiming that business income taxes and compliance costs add almost nothing to prices. That is clearly not the case and never is in an income-based tax such as ours. Whether the price level is raised by 15, 20, or 25% (or more) is difficult to say but it is definitely raised by the effects of business income taxes and compliance costs being embedded into costs that are presented on to other production/distribution levels and eventually to the consumer.
This tax is no more fair than the one we have now, esp. for those people who have played by the rules and organized their financial lives in such a way to be optimal with the present system.
At most these costs are about 8% of the cost of goods-- the real money is in the payroll and income taxes paid to the workers. THis is the bulk of the embedded taxes. You can see this by looking at the income of the FedGov last year and looking at the percentage that is income and payroll taxes. It's the vast majority of the tax income of the US.
FairTax @ 23% $4.60LOL! Is that "23% of the gross payment" inclusive?..No
Try $5.97
.23 X (of) $25.97 (gross payment)= $5.97
The amount of money you spend on a gallon of milk that would go for S/Ss is easily edetermined - despite snide remarks from income tax fans such as Rob.
It is specified in the bill itself. The General Revenue Rate of the FairTax is 14.91% (64.83% of the 23% t. i.).. The S/S portion is 27.43% of the 23% (.2743 x .23 or 6.31%). So each dollar you spend on your milk (or anything else) is contributing 6.31 cents to S/S. This is all clearly visible and spelled out in the bill as is the method of calculating the changed rate if required by the S/S law (which law is not part of he FairTax bill).
Despite the fearmongering by Rob and Looey, the S/S rate is controlled by - not the FairTax bill - but the S/S laws. The language in the FairTax bill merely defines how to recalculate the percentages if the S/S rates change. It is NOT a case of "unelected bureaucrats raising your tax rate" (which is one of their favorite lies.
Actually S/S will soon be unsupportable by wage contributions and must have a larger tax base. The FairTax gives that base and relieves the wage earner from being hit with the entire 15.3% withholding tax as at present. That will become part of his takehome pay under the FairTax.
Privitizing S/S is certainly no more difficult after the FairTax. In effect it will have been "privatized" to a large degree since the income from S/S is not taxed and if invested the income from that is not taxed. In all cases, though, the taxpayer is the one who calls he investment/consumption shots.
the fairtaxers don't help their cause with misleading tables of data.
what you said regarding the trickle down effect of no-income-tax very well may be 100% true. but--
the table clearly states that the person earning $10,712 is getting $3101 TAKEN AWAY from them today in the current system. That is an absolute untruth. The reality is that person will recieve ALL of the EIC, plus all of their gross income, minus their payroll tax -- for a total of $14,097.
if they want to be honest about the trickled down effect remove the -3101 from the "current system" and add it as +3101 to the "fairtax system" and convince everyone that when fairtax is passed this poor person earning 10k a year will get a 30% RAISE -- woohoo, can't wait.
(the link again http://www.fairtax.org/tax_returns_single.html )
but but but the current system encourages families, and encourages people to give their money to charity when they die... we can't have the gov performing such liberal social engineering...
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