Note: The following is a letter sent to me from two tireless local FairTax volunteers.
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Wake Up America and Smell the FairTax!
Chuck and Mary Lynn Bailey
FairTax Volunteers
28 May 08
While following the Alabama 5th Congressional District race for the past few weeks, something became crystal clear to the most casual observer: truth and facts don’t matter. What does matter is the cleverness of the written phrase, or the sound bite or the TV news clip. What I’m writing about is the treatment of the FairTax Plan by several of the candidates running for the 5th District Congressional seat being vacated by Rep. Bud Cramer. If accuracy of journalism is still a requirement, then the media should strive to know and understand the issues in order to properly report on them. Reporting on an issue with lack of subject knowledge typically results in misinformation that does a disservice to newspaper readers, radio listeners and TV viewers; in this case, the voters of North Alabama.
First, the FairTax is the most researched bill ever submitted to the House Ways and Means and the Senate Finance Committees. Over $22 Million dollars in private funding have been spent to develop the plan known as The FairTax Act of 2007. The Plan was defined by Americans For Fair Taxation, which was formed in 1995 as a 501 (c) (4) nonprofit, nonpartisan, grassroots organization solely dedicated to replacing the current income tax system. It began as a research organization with the initial goal of finding out what the American people wanted in a tax system, what they felt was the best way for the government to collect revenue, and how taxation could be achieved in a way that most benefited the economy and the taxpayers. Many diverse groups of Americans participated in the extensive polling and focus group studies, and then a nonpartisan team of nationally renowned economists was commissioned to develop the FairTax Plan. They came from Harvard, Stanford, MIT, Beacon Hill Institute at Suffolk, Boston and other well known universities and economic organizations, such as Arduin, Laffer & Moore Econometrics and the National Bureau of Economic Research. The organization is growing and has hundreds of thousands of members and volunteers nationwide. Its plan supports sound economic research, education of citizens and community leaders, and grassroots mobilization efforts.
FairTax FEATURES*:
When the FairTax Bill (H.R. 25/S. 1025) is enacted as presently written, there will be no income tax whatsoever. Also written in the bill is that consumers will pay an inclusive 23% sales tax only on new products and services. That is, the FairTax is contained in the price of the product or service, not added on at the cash register. As a result, consumers will pay taxes when they want to, they will pay how much they want to and they will pay when they choose to spend their money on new products and services. There will be no more paperwork to do on April 15th. The bill eliminates an agency that knows more about you than you are willing to tell your children and the same agency that knows how much you earn, how you earn it and how you spend it. It un-taxes those earning lower incomes and puts back into the economy the $400 billion - $500 billion wasted to collect $1.2 trillion in taxes.
INFLUENCE OF ECONOMIC FORCES:
Several huge economic forces drive us to the FairTax Plan. The economy is taxed at 18.5% for discretionary spending. At that rate, in 33 years, the entire income stream of the federal government will not be sufficient to pay the interest on the debt. That results in four economic forces that drive the FairTax:
- Embedded taxes on products and services to the amount of 22%
- Tax compliance costs
- The underground economy
- Offshore tax shelters
EMBEDDED TAXES:
22% of what we spend today is an embedded tax on everything we buy. Depending on the product, the tax ranges from 16% - 25% of the price. That is the cost added for income and payroll taxes, tax compliance, tax planning, etc., paid at each production step by the thousands of companies manufacturing products in the U.S.
TAX COMPLIANCE:
The Tax Foundation reports that filling out income tax forms costs $350 billion and time spent on those forms is typically 7 billion man-hours. Auditors and accounting firms report that $100 billion - $125 billion is spent yearly calculating tax implications of business decisions. The result is $450 billion - $475 billion to collect $1.2 trillion of income tax.
UNDERGROUND ECONOMY:
It is now known that the underground economy is $2 trillion - $3 trillion, resulting in a huge amount of income taxes on that money being lost. The more complex the code (presently 67,000 pages and growing), the easier it is to go underground. Enactment of the FairTax Plan (133 pages, double spaced paragraphs) will provide the method for taxing drug dealers, prostitutes and anyone else now escaping the income tax system. That is because the FairTax is collected on new products and services at the point of sale and everyone pays, no exemptions. The FairTax also goes a long way toward discouraging illegal immigrants from coming into our country to steal our Social Security and Medicare benefits while not paying into the system. They will have to pay the FairTax on everything they buy.
OFFSHORE TAX SHELTERS:
$12 trillion are deposited in offshore financial centers as tax shelters. These tax shelters consist of dollar dominated deposits: dollars to be safe, offshore to be secret, some of it legitimate and some of it illegal. At the same time, the total financial holdings of U.S. households are $16 trillion - $17 trillion. The $12 trillion sitting offshore “wants” to be in our economy, but can’t be, since the income tax would decimate its value. By eliminating the IRS code (the income tax) in accordance with the FairTax Plan, the United States will become the world’s largest tax haven. That means the $12 trillion will return to our country in months, according to Alan Greenspan.
THE FairTax, SOCIAL SECURITY AND WELFARE - BIG CHALLENGE:
As a part of the previous four economic forces, Social Security, Medicare and welfare must be addressed. Permanently fixing Social Security with the current payroll tax structure of workers paying for retirees will require the government to borrow $78 trillion to cover the cost. But, the total household wealth in U.S. today is about $58 trillion, which only covers 2/3 of the shortfall. Over the next 25 years, as the number of retirees increases by 100%, workers only increase by 15%. The present system can’t be fixed with payroll taxes, nor can it be sustained.
The FairTax fixes Social Security and Medicare in the short term. Of the 23 cents inclusive sales tax on new products and services, 15 cents will fund the government, 8 cents will be allocated to actual Social Security and Medicare trust funds. The tax base increases from 158 million income tax payers to 300 million FairTax payers at the point of sale. Also, the 50 million tourists visiting our country each year will pay the tax. Further, transitioning to the FairTax lifts the cap on the first $97,500 of income and changes to 100% of spending for everyone. The FairTax taxes wealth when it is spent, not income when it is earned.
THE FairTax PREBATE:
The FairTax is designed to totally un-tax lower income employees through a pre-tax rebate, or prebate. The prebate is based on the number of household members, not income, and will be implemented to totally un-tax each household up to the poverty level. It is a cash transfer to every legal household, rich or poor, in the form of a monthly check or electronic transfer to reimburse the taxes up to the poverty level set by Health and Human Services. The poverty level is defined as that spending necessary to buy essentials of life. Beyond poverty spending level, we’re all discretionary spenders and will pay the same consumption tax of 23%. However, the prebate makes the FairTax a progressive system, resulting in the effective tax (annual taxes paid divided by annual spending) being less than 23%. For example, a person spending at or below the poverty level has a 0.0 % effective tax rate, whereas someone spending at twice the poverty level has an effective tax rate of 11.5 %, at three times the poverty level, 15.3 % and so on.
To receive the prebate, each household will be required to verify that all members are legal residents and that each household member holds a legal social security number. To continue receiving the prebate, this information must be updated each year to reflect changes in status. This verification process is the only form required from individuals by the FairTax, but is not mandatory. If one wishes not to receive the prebate, no verification is required.
In 2005, the president’s tax reform commission scored several proposals for tax reform, including the FairTax. The commission reported that the FairTax was the only tax reform proposal out there that completely relieves the poor of the burden of paying federal taxes. What was being scored was the prebate explained above.
TAX EVASION:
One of the 5th District candidates made the statement on WVNN’s Dale Jackson morning show yesterday that there will be more tax evasion under the FairTax, requiring additional personnel to police the system. He based his statement on a report done by the Brookings Institute. However, the Brookings report was based on a sales tax scheme devised by the Institute itself, not the FairTax Plan. Under the FairTax, two factors make evasion less likely: enforcement is reduced from 158,000 million income tax filers to approximately 25 million tax collecting retailers who receive ¼ of the tax receipts to offset collection and reporting costs, and the fact that it takes two to cheat the system: the retailer and the buyer. Fraud is dealt with in the plan. There is more evasion with the present income tax code because it is so convoluted and complex, thus allowing an individual to cheat the system and never be caught. The IRS estimates that its tax gap - the amount of taxes owed minus the amount collected - is around $311 billion in any given year. The same candidate also made other statements during WHNT’s debate concerning the FairTax being regressive. See “THE FairTax PREBATE” above. Based on the statements he has made about the FairTax, there is no reason to believe he is familiar with or has any actual knowledge of the FairTax Plan. He has been offered a tutorial by the writers, but has not accepted.
THE IMMORAL INCOME TAX:
The income tax manipulates behavior through a system of rewards and punishments and is not levied equally on all our citizens. The power inherent in this control is like a narcotic to politicians, leading to over 16,000 changes to the income tax code since it was “flattened” in 1986. The FairTax is just that - a fair tax - unlike the income tax that is rewritten twice a day on average to manipulate our behavior and grant benefits to some that it denies to others. As George Orwell put it, “…some animals are more equal than others.” The next time you hear a politician promise tax credits for laudatory behavior, remember that God gave us free will, but government doesn’t think we are ready to exercise it!
SUMMARY:
A new way of implementing taxes to cover the government’s operational, Social Security and Medicare costs is necessary. “Keeping the IRS in place will not fix the results of the four economic forces discussed in the previous paragraphs. Nibbling around the edges of the income tax code will not fix them. By enacting the FairTax we believe we can double the size of the economy in 16 - 18 years. The economy could grow enough to pay Medicare and Social Security costs. You’d double the monies which would be enough to pay those categories with non - inflationary economic growth, huge increases in exports, huge increases in capital investments and an economy that just couldn’t be slowed down. You can fix none of them with the income tax. You can fix all of them with the FairTax.”
To find out more about the FairTax, go to www.fairtax.org or find and study “The FairTax Book: Saying Goodbye to the Income Tax and the IRS” by Neal Boortz and Congressman John Linder, and “FairTax: the Truth. Answering the Critics” by Neal Boortz and Congressman John Linder, with Bob Woodall.
*Discussion by Rep. John Linder (R-GA) at the American Solutions FairTax Workshop at the Iowa Caucus in Ames, Iowa, 11 August 08.
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