Ted Cruz launches political convention with crowd-pleasing demand to abolish the IRS

Some very solid practical proposals there: No lobbying, term limits, abolish every smidgen of Obamacare, repeal Dodd Frank, balanced budget act . . . but the most important part of the speech is the wake-up call to all of America and the trumpet sound to stand on principle.

AND the government HAS TO live within that 10%, no deficit spending except for wartime emergency.

Specifically, the government has the authority to meet this year’s expenses by borrowing an amount no greater than last year’s actual revenue. But it must retire that debt this year. That is, next year’s outlay budget is limited to this year’s revenue - not some pie-in-the-sky rosy scenario guestimate of next year’s revenue.
And Congress must live within that limit or else be ineligible for reelection.

I have a PhD in Statistics, my thesis chair was a personal longtime friend and colleague of Milton Friedman. I met Leo Linbeck Jr. (the FairTax founder) on several occasions at his office in Houston (he recently passed away and his son Leo III has taken the FairTax helm). I have encyclopedic knowledge of the FairTax and know personally the architects of the legislation. So feel free and don’t hesitate to ask questions.

The movement is now in an educational stage. So I take seriously the responsibility to open the eyes of persons that are curious because 1) once a person ‘gets it’ they never let it go and 2) each person that gets it will in turn open the eyes of many others. This is the way the movement grows.

The movement has ten times the support in Congress over a flat tax. But the 75 sponsors in Congress who support it are waiting for the grass roots to wake up to it. It takes only 3000 FairTax activists in each congressional district to turn the US Rep towards it.

Although the FairTax is now about 12 years old, I don’t mind if it takes another 5 to 10 years to pass. I tell people that it took the income tax 52 years to become constitutional (Lincoln passed a 1% flat income tax in 1861 and it grew to become graduated, then was struck down by the Supreme Court). I don’t think the FairTax will take so long.

Let me brief you on the criticisms of the FairTax. About 99% of the criticisms come from people that have a vested interest in the income tax. Tax Accountants are not the biggest critics as their national groups have stated that tax work is like pulling teeth and is conflicting, they would rather shift to what they do best, business planning. The biggest critics are tax lobbyists inside the Beltway. Since Reagan was in office the number of tax lobbyists has more than quadrupled from about 12,000 to over 50,000. That is the group that circles the wagons for the income tax. The good news is there are more than 144 million individual income tax filers. If 10% of individual tax filers ‘get it’ including the overwhelming support from business tax filers, Congress will pass it.

Now here are some of the salient criticisms of the FairTax:

1) It doesn’t cut spending and the problem is spending.

True and not so true. Cutting spending to balance the federal budget never happens because too many people have their hands in the pie and the spending is murky and dark if not hidden. Spending doesn’t get into everyone’s face like it should. The income tax is the perfect smoke and mirrors tool to hide who pays the appropriations for spending.

The FairTax is like a bright shop light that shines on the real process of appropriations so that everyone can see it and understand it. The FairTax rate is set at 14% of all RETAIL goods and services and increases to 23% to be REVENUE NEUTRAL, why? Because the FairTax does not seek to become embroiled in spending fights that go nowhere. But 23% is what the government takes out of GDP. This ‘educates’ people as to the true cost of federal government. A concrete example: a 2 X 4 at a home improvement store costs $2 on the shelf and $0.46 of that $2 is added cost created by the federal government. If people don’t like 23% as a rate, their congressional representatives vote on setting the rate every year. If people want a lower rate, then they can put pressure on Congress to reduce the rate. Of course this will make people consider all the entitlements that federal government administers but it will open the eyes of the consumer to know that the cost of federal progressive programs hit them in the pocketbook at the cash register. This is why progressives become hysterical about the FairTax. It goes without saying that this applies pressure to cut spending. We say the FairTax is TRANSPARENT.

So 23% is high but that’s not the fault of the FairTax, it is the fault of spending. However, it is a potent talking point for many pols to evade discussion of the FairTax.

2) The FairTax is a VAT.

No, the FairTax is absolutely not a Value Added Tax. A VAT is a tax on each stage of production and it is hidden to the consumer. The federal business income tax acts as a VAT to impose a cost on a product or service on each stage of its production. Passing a VAT on top of income tax would increase the cost of goods and services.

The FairTax never taxes businesses. The FairTax only taxes NEW products and services sold to the consumer (RETAIL). Therefore, businesses are freed from having to pay any taxes or to file any forms other than sales tax reports to state collection agencies who act as collectors for the federal government. We can think of the FairTax as a giant shunting device. It eliminates all federal taxation in the supply chain and ‘shunts’ them to the retail endpoint. It is a replacement tax, not an additional tax.

The FairTax comprises a RETAIL TAX. The FairTax is legislation tax code to cover who pays, what rates, adminstration and enforcement and so on, The tax provision of the FairTax is called the National RETAIL Sales Tax or NRST.

3) The FairTax and the Income Tax will exist in parallel.

This is a valid criticism. Although the FairTax scraps the federal income tax code and abolishes the IRS, the 16th amendment remains in place and will always pose a danger to resurrect an income tax in future sessions of congress. In Washington state where I live, there is only a sales tax on consumer goods, yet progressives try now and then to sell the public on an income tax of ‘only 1%’ to funds schools and children’s programs (for the children). We can imagine that future sessions of Congress with support of the media will launch an initiative to tax the rich only 1%. All income taxes in US history started out as 1% with a slightly higher rate on the super rich who actually never paid as they bought support in congress to change the definition of ‘income’.

The FairTax has a provision in its legislation to sunset in 7 years if the 16th Amendment is not repealed. The leaders of the FairTax think that people will be so enamored with the FairTax that they will never seek to go back and they will support a repeal of the 16th.

But still it needs to be understood that vigilance must exist to guard against a reemergence of the income tax.

4) The FairTax is a socialist’s dream because of its ‘Prebate’.

This is false. The Prebate (also called Rebate) is for every American and represents a tax cut that is uniform for everyone. It is a tax cut because in effect it says there will be no federal taxes on the essentials of living. And this is for everyone the same; the same for Warren Buffett, the same for grandmothers on Social Security.

How is this done? The poverty rate is calculated by the DHHS and has been means tested and seasoned for decades. It is an accurate measurement of what is necessary for survival. It reflects income necessary to pay for the essentials of living. It is for an individual about $10,300. This translates to a little more than $858 per month and 23% of this amount is about $197. So the FairTax will not take the first $197 of taxes every month because it is assumed that people will spend all of the $858 per month that is poverty level spending.

So how to easily ensure people do not pay the first $197? Send everyone a monthly tax rebate either in the form of a check or on a card. The federal government is fantastic at printing, cutting and mailing checks. Under Bush II there were two tax rebates mailed to more than 100 million filers. The federal government can do it and it does not cost a lot. More than 47 million people hold EBT cards that are charged up every month. It is no problem to issue a tax rebate card and charge it up to $197 every month.

5) The FairTax Rebate can be manipulated to reward certain constituencies,

This is false. The US Constitution’s uniformity clause and its original tax clauses prohibit different tax treatments to different segments of the population. It would be unconstitutional to pay New Yorkers $350 a month in federal FairTax rebates and $150 a month to red state residents.

However, bringing back the 16th Amendment effect of an income tax code can skew the uniformity of the original provisions of the US Constitution.

6) The FairTax unfairly taxes twice those who save.

This is false. Today’s savers pay an income tax and then save what they can. Eventually they pay a 23% NRST when they spend their savings. So the criticism is that the FairTax is a double tax.

Now here is where a concrete example is important because this criticism confuses people the most.

The idea of the FairTax is that money saved is eventually spent in some fashion. And under the income tax it is spent on goods and services that have a federal government embedded cost of 23%.

Going back to the $2 2X4 on the shelf of a home improvement store, the cost of the 2X4 attributed to the federal government is $0.46. But the IRS and the income tax are abolished under the FairTax so the 2X4 price on the shelf falls to $1.54 and when it is taken to checkout, $0.46 is added back on for the cost of the federal government.

So savers are already taxed twice under the income tax, they just don’t see the second tax event when they spend their savings because the cost of goods and services is inflated by the federal income tax code and is hidden from them.

And under the FairTax savers are never taxed at the outset when they earn income. They are only taxed when they spend on retail goods and services.

Hopefully this will give you a leg up on tax history and policy.

I can assure all those that are curious that the FairTax beats the income tax in every respect. It will unleash a huge wave of growth in the USA and make American products and services much more competitive abroad because the FairTax is not collected on exports. The FairTax collects taxes from every segment of society who do not present pay taxes such as foreign tourists, and black market operatives resulting in a huge increase in government tax revenues. Businesses alone will save more than 300 billion in tax compliance costs.

Oh and speaking of black markets, this is another false criticism of the FairTax, that it will create or expand black markets. It does not. Black markets exist now and only one person is necessary under the income tax code to commit tax evasion. But under the FairTax, two persons, a buyer and seller have to conspire to evade taxes. Sting operations can quickly and efficiently wipe out black market activity under the FairTax.

So, in sum the best criticism of the FairTax is that the rate of 23% is too high. Well so what? It should make people angry every time they see 23% added at the checkout stand. I think that’s a good thing. It will start to make Americans really think about the cost of federal spending.

I like your list quite well, though I’d prefer more formal language for some of them.

Thank you.

I do have one more serious quibble - you mention forfeiture of pensions for misbehavior. That seems to establish a precedent against term limits. Under term limits, nobody should be an elected officer long enough to justify getting a pension from it.

I'm not thinking solely of elected officials, but also the unelected bureaucrats and judges. The inclusion of elected officials therein is to emphasize that they are not immune (it is, after all, loss of position in addition to pensions).

My other impulse is to add things which would make it even more impossible to get ratified. But they’d be off-topic.

I have three other amendments I've been working on — one that would remove the ability of the federal government to define the value of the Dollar (defining it in terms of physical gold) and limiting the amount of debt that can be incurred to 110% of the amount [of physical gold] the Treasury has possession of and forbidding the imposition of unfunded liabilities upon the states. &mdashl I think that one would be more impossible than this one.

I agree, a flat tax is a sophomoric idea and will never gain support. If the fair tax or, (I prefer), consumption tax was ever fully explained to the populaces, it might have a chance of succeeding.

One idea I have in mind is that if we could convene a constitutional convention, thereby bypassing the president and the Congress - and get ratification by the states - we could identify the members of SCOTUS by name. Even if it did nothing more than name the present incumbents, it would establish the precedent that the states actually have authority over SCOTUS. The states could fire SCOTUS justices. Of course if the Senate actually represented the States rather than the people of the States, that would have a similar effect.

Ironically, in a world where Representatives have computer programs and data which allow them to choose their voters, the state governments which draw the district lines have a stronger say over Congressional delegations than they do over Senators. I’d rather have Senators be the running mates of governors, so that the effects on the states of unfunded mandates passed by the Senate would reflect directly on the governors who nominated them.

That would require that senatorial terms be either 4 or 8 years. If 4 years, then the governor would have to either name (e.g., renominate) a senator for the four years after his term as governor or take over the senate seat himself. That would have the merit of assuring governors, (if not state legislators) would get respect in Washington.

Bump!

; )

Firebrand bump!

As Pamela Geller says, You can worship a rock if you want to. Just don’t throw the rock at me.