The need for good tax reform is one of the most important issues facing this country. But the thinking which created the problems of the current corrupt and dysfunctional “income” tax system cannot be the basis for solving them. And in going forward, we must continually heed the warnings of the fourth Chief Justice John Marshall who said: “The power to tax involves the power to destroy.” So it's not enough to just propose a tax system that is only marginally “not as as bad” as what we have, rather, we need one that is actually absolutely better.
I, along with a growing number of other citizens, realize we must completely replace the current so-called “income” tax system with a system that is simple (it's easy to understand), efficient (it doesn't take up a lot of resources), and is fair (it treats people equitably under the law). I contend a system which meets all these criteria, and more, already exists in legislative form, its called the FairTax. In fact, since its reintroduction in the 110th Congress on January 4, 2007, as of July 4, 2007 the FairTax Act (HR25) has already attracted 62 cosponsors, and the Senate version (S-1025) has 4 cosponsors.
Here are the basic features of the FairTax:
1) The FairTax will abolish the so-called “income” tax system and its mechanics.
2) Wage withholding (Social Security, FICA, et al) will cease, allowing individuals to take home and control 100% of their wages again.
3) All "income" tax form filing will be abolished for individuals and businesses. April 15 becomes just a beautiful spring day again!
4) The IRS, as we know and hate it, will be abolished, and the Internal Revenue Code (IRC) trashed.
5) A federal National Retail Sales Tax (NRST) will replace the "income" tax, with an initial 23% (tax inclusive) excise tax on the retail sales of services and NEW (not previously sold) products.
6) The NRST will NOT be imposed on the wholesale purchases by businesses of goods which are to go into products that will eventually be sold at retail to end-users of the products.
7) The NRST will be administered by the States, and monies collected sent to the federal treasury.
8) Each family will be eligible to receive a monthly prebate. The prebate amount is determined solely by family size (one or more persons) according to the official poverty level designated for each family size.
9) The FairTax will NOT tax savings, or interest and investment earnings.
10) The FairTax calls for the repeal of the 16th Amendment, the so-called “income” tax amendment.
The creation of the FairTax was the result of a lengthy period of extensive study and analysis of the economic, social, and constitutional issues and affects of taxation. Its goal was to produce a viable and functional tax system that would raise the necessary revenue to fund the federal government with the least amount of social and economic disruption. It is probably the most scientifically sound and understood piece of public policy ever proposed in this country, with very specific design criteria and goals it is devised to meet. Here are some of the goals and outcomes the FairTax is designed to achieve.
The FairTax is designed to be simple and efficient
Currently it is estimated people and businesses spend from $200B-$350B a year just to comply with the administrative cost of the “income” tax. This doesn't include the costs and inefficiencies that the government incurs in trying to enforce it, and Congress wastes in the yearly finagling of the IRC, with all the corruption surrounding lobbying to influence that. The FairTax in one fell swoop wipes all of that away. It creates a simple excise tax that is administered by the States (45 of which already have state sales tax systems they administer), which abolishes the IRS and IRC as we know it. Smaller government, cheaper government, and better government, all with one Act.
The FairTax is transparent
Everything about the FairTax is open to scrutiny, You will always know what the tax will be on anything you buy before you buy it. Revenue figures can be easily generated on a periodic, and by state, basis to show the amounts collected. And since there is only one number that determines the tax, the tax rate is the only thing that can be changed by Congress to affect the amount of revenue being raised. No hidden lines in an incomprehensible tax code, or special exemptions or exceptions. Tax lobbyist go out of business. And if any member of Congress tries to “mess” with the system, it will be open for everyone to see (if they dared).
The FairTax is “progressive” and treats everyone fairly
The FairTax is fair because by its design it's “progressive” and it treats people “equitably.” Its progressive because people determine how much they are taxed by the level and type of consumption they engage in. The more you spend on taxable items the more you pay in taxes, and those with the most money will spend the most, and thus pay more in taxes. Also, because only “new” items are taxed, people who buy used goods won't be subject to the NRST, thus people can spread their full paychecks even further. And with the monthly “prebate” families will not spend any of their own earned money to pay for the NRST until they spend past the poverty level for their family size. If their monthly spending is less than the poverty level they will be earning money from the government. This is obviously fairer than the current “income” tax system, which takes money directly out of people's paycheck without regard to their poverty level, and caps the amount of money withheld from people's wages once it's past about $90K. The withholding system is, thus, by design “regressive” in benefiting high wage earners, while instituting a system of (unconstitutional) “wage slavery” in the process.
The FairTax is economically sound
In our 231 years of existence since 1776, the taxation of “income” has only been the dominate source of revenue (individual and corporate) for the federal government for only the past 50-60 years. Before that the government subsisted on the revenues from duties, imposts, and excises (Indirect Taxes), though it's always had (and still does) the authority to impose a Constitutionally valid apportioned Direct Tax on the States. The FairTax switches the basis of federal taxation from “income” back to consumption, which is a much larger and stable basis for taxation. Everyone (people and businesses) is ultimately sometimes a retail consumer. And the taxation of consumption includes foreigners (visitors, student, immigrants, etc) and foreign businesses, thus, not just Americans will be contributing to the tax base.
That FairTax encourages savings
The US has one of the lowest rates of savings in the western world, largely due to the fact that interest and investment earnings are included as “income” to be taxed, while debt (like mortgages) can be deducted. Thus, the “income” tax promotes regressive economic behavior, which is what most people engage in. Under the FairTax, whatever you don't spend now can be saved with positive economic benefit. Thus, over time, there will be a substantial increase in savings, as people are encouraged to behave financially rationally.
The FairTax will cause interest rates to drop
Because people and businesses will be able to keep and save more of their money, this means, without the government having to print any additional money, the banking system will incur an increase in money (savings). This increase in the available supply of money will cause the price to acquire money (interest) to drop. Additionally, since people/businesses will have more of their own money to use, this will lower the demand for credit, which will also cause interest rates to drop, to spur the demand for bank capital.
The FairTax will spur economic growth and stability
With people/businesses having more money to use for their personal/business needs the higher capacity to spend will spur demand, which will spur business growth to meet it. Without the “compliance cost” of the “income” tax, which accounts for about 23% of the price of goods, prices will drop to meet demand, within a heightened competitive environment, as more businesses are able to focus all of their resources on productive business activities. Employees effective wages will immediately increase (without being subject to withholding) and will grow over time as businesses grow in the expanding economy.
The FairTax will make the US attractive to businesses
With the elimination of the corporate “income” tax, the US will become attractive again for domestic and foreign businesses. Moving businesses offshore becomes less attractive as the cost differential to do so won't be worth it. Foreign businesses will flock to the US from countries with corporate tax systems, and to be closer to their end markets, and to reduce their goods transportation costs. Plus, since capital will be cheaper in the US, businesses can expand faster and cheaper. And without the “creative accounting” tricks encouraged by the tax code (e.g. by Enron, et al) simpler, more accurate, and honest accounting will provide truer pictures of businesses for investors, stockholders, and regulators. And, in a few short years, the US will wipe out its trade deficit, and become a net exporter of goods again.
The FairTax is in total harmony with the US Constitution
The FairTax calls for the repeal of the 16th Amendment, which allegedly gave Congress the power to tax “income.” But in the "The Law That Never Was, Vol 1 & 2", Bill Benson (www.thelawthatneverwas.com) documents how the 16th Amendment was fraudulently declared to be ratified in 1913. And from its alleged inception, the so-called “income” tax has been challenged as being unconstitutional. The film "America: From Freedom to Fascism" (2006 by Aaron Russo, free to view at http://video.google.com/, search on "freedom to fascism") goes into the details of how and why no one is required to file “income” tax forms or “voluntarily comply” to pay such so-called taxes. The FairTax is a fully valid excise tax, as authorized by Article I, Section 8, Clause 1, to be uniformly applied to the States (e.g. the federal gasoline tax, et al).
The FairTax puts “we the people” back in control
With the government's greedy hands out of our wallets and bank accounts, citizens will be able to directly express their displeasure with the government by deciding to keep more of their money in their pockets by not spending, or by spending more on used goods, We will also be able to reign in the power of corporations by controlling and directing our spending with them too. Thus, because neither Congress or Corporations would have direct access to our money, “we the people” now have the power to control them.
With all of these irrefutable benefits of the FairTax, most citizens are unaware of it, because of the failure of mainstream (corporate owned) media to inform people of it, and accurately explain its features and benefits. Most congresspeople either don't know it exists, don't support it for a lack of understanding, or oppose it for ideological, partisan, or political reasons.
However, even with the deliberate indifference shown to it by the media, and the seemingly inability of Congress to ever pass tax legislation that will benefit the country, the FairTax is about to reach its tipping point. “The FairTax Book” by its legislative sponsor Rep John Linder and radio host Neal Boortz, spent weeks on the bestsellers lists in 2006/7, proving the American public is interested in the topic. And Americans For Fair Taxation (AFFT) (www.fairtax.org and www.myspace.com/fairtax) a grassroots organization created specifically to get the FairTax passed, is making it a central issue in the 2008 presidential election, by holding rallies at the debates around the country, and confronting the candidates on their support of it.
Nothing is more powerful than an idea whose time has come. The FairTax is a radical departure from the status quo, whose time has almost come. And the sooner more people know of its existence and benefits, the sooner that time will come.
4 comments:
1) What does "progressive" mean?
A "progressive tax" means that people with higher earnings (more money) will pay relatively more in taxes than those with lower earnings.
A "regressive tax" means those with higher earnings will pay relatively less in taxes than those with lower earnings.
"Relative" means as a percentage of ones total spending or earnings.
The Fair Tax is progressive because people with higher earnings will pay more in taxes because they will spend more of their earnings on taxable purchases, just as they do now. Except now, those purchases are just taxed by the states.
The Fair Tax is progressive also because the tax prebate allows every family to spend up to the poverty level for their family size (rich or poor, everyone is treated the same) using the prebate money only. They only begin to use their own money to pay the NRST once they exceed this amount. But if people choose to spend money on used goods they also escape the NRST. Without a doubt, people with more money are already the biggest retail spenders, and under the Fair Tax they will contribute absolutely more to the tax base.
The income tax is regressive because SS, et al, is withheld relatively more from lower wage earners than higher, because wages over about $90K are capped, and no longer subject to these withholdings.
So people making $100K, $200K, on up
have the same absolute amount of money withheld up to the $90K cap, no matter how much they make. Thus as a percentage of their earnings, the effect of this withholding becomes a decreasing percentage of their total earnings, while for those under this cap it is a constant percentage. Not only that, these withholdings are taken from wages of people starting out living in poverty and thus puts them further into poverty.
This is a classical "regressive" tax.
2) The Fair Tax increases the amount the rich will pay AND reduces the absolute amount of money the poor will pay.
First again, everybody can take home all of their wages under the Fair Tax, an effective 20%-35% immediate takehome pay increase without salaries even going up. And unless a family (a unit of one or more persons) spends above the poverty level on taxable purchases, they will not use any of their own money to make these purchases. So again, people making the most taxable purchases, especially on highend and luxury goods, will be paying more in absolute dollars.
Again, by design, the Fair Tax is structured to be fair! You control the amount of taxes you pay by the amount you spend on taxable goods and services and start each month with a prebate check to add to your personal earnings.
Finally, the unconstitutional "income" tax has made us all "wage slaves" to an unaccountable federal government. If you believe in the Constitutional, and if you believe slavery, in any form, is legally, socially, and morally reprehensible, then at minimum, you should seek the abolishment of the "income" tax.
Now what would you rather live under, the present system, or the Fair Tax system?
You Said: "The Fair Tax is progressive because people with higher earnings will pay more in taxes because they will spend more of their earnings on taxable purchases, just as they do now."
More in real terms, not in relative terms? And the statement is prophecy, not fact. The "just as they do now" part shows an assumption on your part: you assume that changing the tax law will not result in a change in behavior. The opposite is a more reasonable assumption. The upper middle class and the wealthy generally view themselves as being able to adapt, financially. And their behavior will change as a result of the new law.
You said: "The Fair Tax is progressive also because the tax prebate allows every family to spend up to the poverty level for their family size (rich or poor, everyone is treated the same) using the prebate money..."
That sounds like double speak. “We’re concerned about the poor and so to show our concern we’re going to treat them exactly the same way we treat doctors and lawyers…”
I’ve read the prebate stuff. Actually, the prebate is one of the most draconian, regressive aspects of the so called "fair tax" proposal. It’s true, everyone (not just the poor) gets a “prebate” - provided they do the paperwork. Paperwork is minimized for rich college grads and the poor high school dropouts who don't file a 1040 now have to start doing paperwork to get back money they shouldn’t have had to pay in taxes. It will work as long as poor people don’t move around too much and don't mind registering their address with the new Tax Prebale Authority (or whoever send out the checks). The tax proposal makes life much easier for the well to do and intrudes on the lives of the poor and lower middle class. And it doesn’t seem to understand how the poor think about cash flow.
You said: "But if people choose to spend money on used goods they also escape the NRST."
BINGO! Currently what we have is an enforcement issue combined with a tax code that, admittedly, is too complex. Do you honestly think we won’t have enforcement issues with a sales tax? You make it sound like there’s no such thing as a black market. (How, for example, do you plan to tax the sale of new cocaine?)
The idea that I could pay $4K to $5K in tax on a new Subaru (retail $19,500) while my banker pays no tax on a $55,000 used Dodge Viper bothers me. Or, let’s use the example of a new house; is there no sales tax on a second hand mansion?
Part of the problem is that fairness is, after all, an unquantifiable impression - not a measurable truth. What kind of tax system would you create if you didn’t know whether you’d be rich, middle class or poor?
You said: "The income tax is regressive because SS, et al, is withheld relatively more from lower wage earners than higher, because wages over about $90K are capped, and no longer subject to these withholdings."
I agree that the payroll tax has become regressive. Lifting the $90K cap would help fix that. That would be my solution to that particular problem with the current tax code.
You said: "The Fair Tax increases the amount the rich will pay..." And you also said: "You control the amount of taxes you pay ..."
So which is it? I don’t think both those statement’s work. And why don't I see crowds of poor people lobbying for the tax? It seems to be bankers and lawyers who want it the most. The answer is in the second statement – about controlling how much you pay in taxes.
My wife and I both teach. We have six college degrees between the two of us and somewhere in the neighborhood of 11 years of full time graduate work between us. I make a small sum off of writing in addition to my teacher’s salary. We have an adjusted gross income just under $90,000 a year. If we managed to put $8,000 in our IRA this year (saved it instead of spending it), our prebate would mean that we paid taxes on 69% of that $90K. If our doctor had an adjusted gross income of $425,000 in the same year and he managed to put $275,000 of that away and live off of a paltry $150,000, he and his wife (assuming they have no dependent children at home) would pay taxes on just over 30% of their income. How is that fair…?!? It’s not – and it removes the $275,000 from the government’s revenue base (which is part of the so-called fair tax’s agenda).
You said: "Again, by design, the Fair Tax is structured to be fair!"
Answer my question above about why it is fair for my doctor to pay taxes on 30% of his income when I pay taxes on 69% of mine. Your statement is circular: it's fair because, why, that's what fair is? It's fair because it's fair. Why is a flat sales tax fair while a flat income tax isn't? The answer is control. People who make $100K a year can control their spending and live acceptably; people who are poor have no choice in the matter because they spend all their money to eat and stay warm in the winter. And if they don't move around too much and they're not too illiterate to complete the paperwork involved, they'll get back from the government the money that shouldn't have been taken from them at the grocery store. A nice flat income tax system with an exemption/deduction for the poverty rate - one where the tax was applied to all income, earned or unearned - would come much closer to being fair in my mind. Why isn't anyone proposing that? Control. Control (not some ill-defined concept of fairness) is the issue. Just as you said, "You control the amount of taxes you pay by the amount you spend on taxable goods and services and start each month with a prebate check to add to your personal earnings." And that’s true, if you have money to pay taxes on; but for people living in the lower middle class, just above poverty, they’ll have very little relative choice.
You said: "Finally, the unconstitutional income tax..."
The courts have ruled that it is constitutional. That makes it constitutional. Between 1916 and 1955 the White Court, the Taft Court, and the Warren Court all three ruled on the constitutionality of the 16th Amendment. There are several arguments fairly ludicrous arguments to the effect that the 16th Amendment is unconstitutional (despite being ratified by 42 states). All those arguments ignore the rulings of three different Supreme Court and imply that for the past 95 years the U.S. Supreme Court has been like some kind of Babylonian Papacy. The real upholders of the Constitution must be in hiding. So to which of those many theories do you subscribe? Please, enlighten us as to exactly why income tax is unconstitutional.
You asked: "Now what would you rather live under, the present system, or the Fair Tax system?"
Assuming by "Fair Tax" you're referring to the unfair proposal to replace personal income tax with a national sales tax, I'd rather live under the current set of laws.
Well greg, some folks just can't be convinced by facts and rational logic. Like people who won't accept evolution, quantum physics, or even that NASA actually did land a man on the moon, you seem incapable of assessing the science of economics that sustain the Fair Tax.
Hopefully, after the Fair Tax becomes law, and you have lived under it for awhile and experienced its benefits, you will feel thankful others understood its worth and fought to obtain its passage.
We disagree, so I'm stupid? And that's your idea of logic?
I teach fifth grade at the moment, although in the last decade I've taught everything from kindergarten to college students who wanted to be teachers. In the fifth grade we have a lesson that occurs every year that explains the difference between fact and opinion.
A fact is something that can be verified, back up with evidence. An opinion is a belief or perspective that, while it may be valuable to the person who holds it, cannot be back up with objective evidence that is available for anyone to examine.
As far as I can see, almost everything you've said is speculation and opinion. Your definitions of "progressive" and "regressive" (to the extent that you even have definitions) are largely subjective. Your statements are contradictory (The rich will pay more, but they'll be able to control what they pay?). And when asked simple questions about why you think income tax is unconstitutional, your response is the same sort of juvenile name calling I see on the playground at my elementary school.
Then you want to tell me that your opinions are facts, that your statements (I'd say "arguments," but you don't make any arguments) are rational, and that I'm some kind of ignorant throw back for not simply accepting your opinions at face value.
I've lived on four continents, in 14 times zones. I hold two graduate degrees - one in linguistics from the Australian National University (which has produced Nobel laureates) and one from Marshall University. I've studied a little Chinese, Latin, Finnish, Greek, Arabic and Turkish and I can struggle through a written text in German and Malay. And in addition to my teaching job I'm paid to write about venture capitalism online.
As an expert on fifth graders I'd say to you that you should learn the difference between fact and opinion. Until then, you are not smarter than a fifth grader.
When it comes time to choose a tax system, I hope your readers will remember that – the proponents of the so called “fair tax” proposal generally don’t know fact from opinion and would rather call people who disagree with them names than answer their questions...
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