Posted on 05/10/2002 9:49:43 AM PDT by n-tres-ted
Testimony Before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means
Hearing on the Extraterritorial Income Regime
May 9, 2002
Thank you Mr. Chairman and members of the committee. I am Herman Cain, Chairman of Godfather’s Pizza, Inc., a chain of 600 small businesses, Chief Executive Officer of T.H.E., Inc., a leadership consulting company, and, I am a member of and speaking on behalf of Americans For Fair Taxation. I appreciate the opportunity to testify before your committee on “promoting the global competitiveness of US businesses in the global market place.”
There are two basic issues for multinational corporations in the global market place. First, they are at a competitive disadvantage due to the imbedded costs of taxes on corporate profits, and taxes on payroll for domestically produced products. Secondly, the variations in tax law from country to country create many complex and costly inconsistencies. In fact, the extremely high cost of compliance may actually exceed the amount of taxes paid. The net result is that billions of dollars of foreign profits by US businesses are stranded overseas, which cannot be economically repatriated to benefit our domestic economy. The solution is not more laws, more regulations, or even more tax treaties with more countries. The solution is a new tax system, which would eliminate these issues.
The current income tax system cannot be reformed. It creates disadvantages for multinational businesses, domestic businesses, individuals, and our government. No amount of tinkering with a portion of the tax code is going to fix it. It is too complicated. It inflates the costs of US goods and services to other nations. It is too unfair and inefficient. It discourages people from working harder to achieve upward economic mobility, which destroys hope and opportunity. The current tax system needs to be replaced. It can be replaced with The FairTax (H.R. 2525), which was reintroduced in the House in 2001 by Congressmen John Linder of Georgia, and Colin Peterson of Minnesota.
Several commissions over the last 20 years, including the one I served on in 1995 (The National Commission on Economic Growth and Tax Reform), have all concluded that a replacement tax system should satisfy six principles. First, it should promote economic growth by reducing marginal tax rates and eliminating the tax bias against savings and investments. Second, it should promote fairness by having one tax rate and eliminating all loopholes, preferences and special deductions, credits and exclusions. Third, it should be simple and understandable. Simplicity would dramatically reduce compliance costs and allow people to truly comprehend their actual tax burden. Fourth, it should be neutral rather than allowing misguided officials to manipulate and micromanage our economy by favoring some at the expense of others. Fifth, it should be visible so it clearly conveys the true cost of government and so people would not be subjected to hidden changes in the tax law. Sixth, it should be stable rather than changing every year or two so people can better plan their businesses and their lives. Before expanding on each principle, consider the compelling advantages of replacing the current income tax code with The FairTax.
Gross Domestic Product (GDP) would increase 10.5% in the first year and level off in succeeding years at approximately 5% annually. (Dr. Dale Jorgenson of Harvard University)
Consumer prices would decrease 20 to 30 percent by eliminating the nearly 250 billion dollars in annual compliance costs, and eliminating the taxes on corporate profits and labor (payroll taxes), which are imbedded in what we pay for goods and services. (Dr. Dale Jorgenson and other economists)
A single national sales tax rate on all new goods and services of approximately 24% (to be revenue-neutral) would replace the 1.7 trillion dollars of taxes on income.
Annual uncollected taxes of 210 billion dollars (IRS estimates) would not escape The FairTax. This amount grows by 12 billion dollars each year.
Taxes of 35 billion dollars on expenditures by non-residents would be collected.
Taxes from the “underground” economy would be a bonus to the federal treasury.
Imported goods would be treated the same as domestically produced goods. This means US businesses would be much less likely to locate their plants overseas.
All taxpayers would have an equal voice, not just people who can afford tax lobbyists and skilled tax accountants.
No taxes on the “poor” because basic necessities, as defined by the Department of Health and Human Services, would not be taxed by utilizing a rebate.
No taxes on earnings from a second job for someone who is trying to “get ahead.”
No taxes on education.
More time for Government to focus on national and international issues.
These advantages of a national sales tax on consumption have been well researched, analyzed and documented by some of the most respected business people, economists, and academicians in the country. Hundreds of thousands of citizens are now actively supporting a change from an income tax to a national sales tax on consumption. We are now seeking the political leadership and courage to make the greatest country in the world even greater.
He is certainly correct on all counts.
Little Willie was "The Worst President In American History".
The unions won't like this one bit. Relatively unskilled manufacturing labor in this country will then have to compete with slave labor in other countries and US businesses will be more likely to locate their plants overseas. Only low cost per unit volume/weight items will be manufactured in this country (i.e shipping and distribution costs drive the price). As it is, this is happening in the current environment and will accelerate exponentially in the proposed tax environment. While thsi proposal is globally fair and would bring labor prices back to reality it is a union buster which will never be adopted as long as unions are allowed to control our politicians.
AGI under his proposed plan is STILL handled as at present and it is STILL an income tax with all the classification and definitional defeciencies thereof - and all of the horrible economic inefficiencies and exorbitant non-productive costs thereof (including an expanded IRS).
Calling the scheme "efficient" is a sick joke as is the present tax system. Dale should stick to economic projections and leave defining plans of taxation to experts that have advabced degrees in Taxation and actively work in that field (as do those who originated the FairTax).
Herman Cain is right on the money.
Little Willie was "The Worst President In American History".
Cain's testimony was just too fine to not comment on.
Keep up the good work, guys, I know we're picking up converts.
Little Willie was "The Worst President In American History".
My, my. What precision. Not 75%, but 76%! Not 10, but 10.5%! Can't have a round number -- better make it 26%!
Whatever the merits of this particular tax proposal, I make it a practice never to trust an economist who claims to be able to compute numbers like this.
can't get on the threads much right now but keep up with them some when possible.
Long time no read? Been missing your commentary.
Don't stay away quite so long, we all miss hearing from you. Welllll, most of us anyway.
Nice thread by n-tres-ted, huh?
Keep educating those friends, neighbors, and relatives! This is how it'll happen....
Meanwhile, when Hillary Clinton was asked about how these costs would bankrupt many businesses, she replied that she could not be personally responsible for undercapitalized businesses.
Yes, but 24% SALES TAX?
Add to that all the state and local sales taxes, and we have something like 33% sales on not only all goods, but services as well. Uuuhhhmmmmmmmm!
Here's an idea, if your company can't compete with third world slave labor and can't compete with the advantages of a value added system, DON'T.
Some things are better built overseas, and we would have more money to make the purchasing choices we want to make. The only companies that would not like this are Corporate Welfare Whores that already have a John or two in congress. They would have to pimp more to compete. What a shame!
There's about 25% added to prices in order to pay for the income tax and compliance costs of the retailer (and his suppliers)... and consider that each dollar you spend today has already been taxed - payroll tax AND income tax!
So in today's world, assuming a 20% tax on income tax and 7.65% payroll, if you want to consume $1 of goods, you need to earn $1.84!
Don't believe me?
1.84 * .75 = 1.38 (the hidden, embedded tax & compliance cost you don't see)
1.38 * .7235 = $1 (20% + 7.65%)
(approx).
Did you have any idea that the effective tax rate paid by most Americans is so high?... Earn $1.84 to consume $1.00??? This is for ANY good or service!
Under the 23% national retail sales tax, in order to consume $1.00 of goods, the maximum one would need to earn is $1.30. I say "maximum" because necessities are not taxed, and investment of any kind is not taxed. Hence the actual tax rates on individuals would be measurably less than 23%.
I hope you responded as you did because you just weren't aware of how much tax you already pay. Indeed, the major obstacle to fundamental tax reform is the ignorance of the populace in regards to the amount of tax already being paid. They've done a good job keeping it hidden.
Welcome to reality.
Look into this link to find out more.
The Individual Income Tax return(1040) that captures everyone's attention each April, is merely a partial VAT accounting sheet the government cons individuals, held at ransom, into filling out. Its misdirection puts blinders on the eyes of the electorate, and totally distorts their perceptions as to the real impact of taxation in their lives.
Every man woman and child in the nation, pays federal taxes through that VAT.
DO YOU PAY YOUR INCOME TAX
AT THE SUPERMARKET?
by D. Sherman Cox J.D. L.L.M. Taxation
The full impact of the federal tax system(taxes in gross wage/salaries & other compensation + business income/payroll taxes) added onto the base(taxfree) price of retail consumption goods and services is 36% for federal taxes alone.
All wages and the taxes on them are paid for out of sales receipts to business,(i.e. consumption expenditure).
Federal tax revenues collected as % of current family expenditure = fed/(1-state-fed-savings) =
23.5/(1-.235-0.102-0.012) = 36.09%
If we add in the cost of federal tax compliance, planning, litigation & enforcement, the percentage that truely represents the burden on the family due to the Federal income/payroll tax system, product prices are increased by more than 55% over taxfree prices.
Where Have All the Dollars Gone?
How the government robs Peter to pay him back.
By economist James L. Payne, Reason Magazine February '94When the overhead costs are added together, (24 percent compliance costs, 33 percent disincentive costs, and 8 percent other costs), they total 65 percent of tax revenue.
Current total Federal tax revenues are about $1900billion, more than $1,000 billion additional dollars are added on onto consumption prices due to the business costs of complying with the federal income/payroll tax laws.
The percent total current federal burden (taxes + compliance costs) of consumption dollars = 36*(1900+1000)/1900 = 54.95% economic burden added on to base retail(i.e. taxfree) prices.
Too bad that citizens don't get a receipt detailing those "hidden sales taxes" buried in their consumption purchases. If they ever did, some of those 70% of the public clamoring for more from government, thinking someone else foots the bill, might be tempted to change their mind.
The NRST(H.R.2525) removes virtually all the overhead cost from the base price of goods and services, and makes the Federal Tax open to the full view to the Voter while maintaning the revenue neutrality necessary for enactment.
Here is a link to an echo of the same dataset, elsewhere on the net.
"Federal taxes 23.5%(taxfoundation)
State & local taxes 10.2%(taxfoundation)
Hope the tax foundation puts their (1900 to current) historical data back on line sometime, its a good resource for keeping track of things.
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