Tag Archives: Fair Tax
As I have written a number of times here on CDN, the GOP is viewed very negatively by the majority of the American public, especially women, youngsters, and minorities – key demographics that the GOP absolutely must win over to remain a viable party, let alone to win future elections.
What is the key to winning their votes? It’s not accepting amnesty for illegal aliens or abortion on demand. Instead, Republicans should focus like a laser on the issue most important to these groups (and to the American electorate at large): the economy.
According to Gallup polling, economic issues (jobs, economic growth, the federal budget, taxes, fair trade) are by far the most important issues for American voters, far more than education, healthcare, or foreign policy. Yet, these days, we seldom hear Washington and the media talk about anything other than Benghazi, Syria, the Obama admin scandals, immigration, and social issues. While these issues are not irrelevant, they pale in importance compared to the economy. It doesn’t matter if the Benghazi scandal is investigated fully if the economy doesn’t recover and unemployed Americans (including college grads) don’t find jobs.
It’s the economy, stupid!
Republicans need to note that and act accordingly. Luckily, there’s a huge opening for Republicans here, because, as stated above, BOTH major parties and the media seldom talk about the economy, despite its importance to American voters (including the key demographics listed above), so Republicans have a chance to distinguish themselves from the Democrats.
From now on, Republicans should devote only a minimum amount of time and hearings to Benghazi, Syria, Obama admin scandals, and social issues, and devote the vast majority of their time and legislation to the economy, while also conducting town hall meetings, listening tours, and media interviews on that subject – and thus, force the media and the Democrats to shift the subject of the national discourse to the economy.
Thus, Republicans would force Obama and the Democrats to fight on grounds favorable to Republicans – grounds where the Democrats cannot win.
But just talking about the economy won’t be enough; one must also propose, and attempt to implement, effective policies. Specifically, Republicans should pass in the House, and introduce in the Senate, bills that would:
- Cut spending seriously along the lines proposed in the Ryan Plan or, even better, the Republican Study Committee’s plan, e.g. the RSC’s Spending Reduction Act.
- Privatize government-owned enterprises such as Amtrak, the Postal Service, the Corporation for Public Broadcasting, etc.
- Provide full funding and a permanent authorization for the Export-Import Bank, which supports US industry and exporters without providing any subsidies.
- Institute the Export-Import Certificates for foreign countries proposed by Warren Buffett – thus allowing foreign countries to export to the US only as much as they import from the US, and also institute strict product quality standards on foreign (including Chinese) products.
- Strengthen Buy American laws.
- Utterly reject any form of amnesty for illegal aliens and dramatically cut down the levels of immigration, both legal and illegal, while making it easier for highly-skilled foreign workers and university grads to immigrate to the US and contribute to the US economy.
- Block-grand Medicaid to the states and pass Medicare and SS reform.
- Pass legislation that would legalize fracking throughout the country, open all shale oil and NG reserves, open the ANWR and the National Petroleum Reserve in Alaska, authorize the Keystone Pipeline over Obama’s objections, and authorize offshore oil drilling.
- And most importantly, abolish the IRS, the Internal Revenue Code, and the 16th Amendment and replace them with the FairTax (H.R. 25). The IRS is not an agency whose powers have been abused – the IRS and the federal income tax are DESIGNED for abuse. They are DESIGNED to be tools of oppression per se. Making the income tax flat, or eliminating section 501(c)3, or “improving oversight”, or passing a mild reform bill will NOT solve the problem, because it would still leave the IRS (with its awesome audit and status denial powers and its huge bureaucracy) and the income tax (which punishes people for productivity and takes away what they’ve earned) still in place. So a flat income tax would change NOTHING. ONLY the FairTax bill (H.R. 25) would solve the problem by abolishing the IRS and the income tax FOREVER, mandating the destruction of all personal records held by the IRS (except those related to SS, which would be transferred to the SSA), and initating the repeal of the 16th Amendment.
- States should also enact significant economic reform by cutting taxes and spending, implementing tort reform (including the Loser Pays rule), and adopting Right-to-Work laws.
Last but not least, Republicans should explain, in detail, to average Americans how exactly these policies would benefit them directly. This is something that Republicans have so far failed to do.
In trying to win future elections, Republicans will be climbing uphill. But the economy is not an issue of just one special interest group or one demographic. It is an issue which all Americans care about, and the vast majority prioritize above all other issues, yet, the media and Washington seldom talk about it. If Republicans start prioritizing the economy instead of Benghazi and Syria, they’ll show the public they are totally different – they’ll offer a totally different, and a much different, product to a public that is eager to buy it.
In the wake of the recent IRS scandal, some well-intentioned but badly misguided people have begun touting the flat income tax (called the flat tax for shorthand) as a replacement for the current tax code. They claim it would be an antidote to the IRS’s abuses and curb that agency’s powers while also supercharging America’s economy.
But they are dead wrong. The flat tax is no solution at all. It would not solve any of the problems with the current tax code and the IRS, and it could be replaced with a progressive income tax by the next Congress anyway.
Here’s why the flat tax would utterly fail to solve the problem, and why the FairTax – a flat 23% consumption tax designed to replace all federal internal taxes (income, payroll, excise, gift, death, etc.) is the solution:
- The flat tax would still be an income tax, and as such, would still punish hard work, wealth creation, productivity, and savings, taking away from people what they have earned. Making an income tax flat does not change the fact that it is still a punitive tax on INCOME. By contrast, the FairTax, as a consumption tax, would be levied only on retail sales, not on income, inheritance, or the sales of raw materials or unfinished products.
- With the flat [income] tax, you would still have to file tax returns every year by April 15th, and be liable for any mistakes you make therein. With the FairTax, there would be no such problems.
- Administering the flat [income] tax would still require having a large IRS with dozens of thousands of staff to receive and review tax returns, audit people and organizations, and punish cheaters, and the IRS would, of course, retail ALL of the awesome powers it currently has, all of its staff, and all of its budget – and would still retain all your financial records. By contrast, with the FairTax, the IRS would be abolished PERMANENTLY, and under the FairTax bill (H.R. 25), all IRS records would have to be destroyed within 2 years of the FairTax being enacted – the sole exception being records related to Social Security, but these would be turned over to the Social Security Administration, not retained by the Treasury.
- Unlike the flat [income] tax, the FairTax would be administered by the states, who would then send the revenue (minus their costs of administering the FairTax) to the federal government. Thus, it would dramatically shift the balance of power in the US in favor of the states and against the federal government. There would only be a federal Sales Tax Bureau with 51 personnel to audit the states in rare cases of state malfeasance.
- The flat [income] tax would keep the current tax code, although it would be somewhat slimmed down from today’s 70,000 pages. The FairTax would abolish the federal tax code completely and replace it with the simple 123-page FairTax Act.
- The FairTax would provide sufficient revenue for Social Security, though not for the entire federal Leviathan that exists in Washington today.
- The FairTax would be completely transparent – you would know how much you pay in taxes everytime you make a retail purchase. By contrast, even under the flat tax, you would not know how much you really pay in taxes.
- The flat [income] tax would keep the 16th Amendment. The FairTax Act would jumpstart the process of REPEALING the 16th Amendment forever, and would sunset (i.e. expire) automatically 7 years after its enactment if the 16th Amendment is not repealed within that time. But once Congress passed a resolution repealing the 16th Amendment, the states would be eager to ratify such resolution, as it would shift the balance of power in their favor.
- The flat [income] tax would keep tax exemptions and thus allow the IRS to decide who deserves them and who doesn’t. Conservative groups applying for such exemptions would still face IRS audits.
- And last but not least, the flat [income] tax would not remain flat for long. The next Congress could repeal it and replace it with a progressive one. The evidence? The current monstrosity of a tax code started in 1913 as a flat income tax at a 4% rate. But just 4 years later, in 1917, it was a heavily progressive income tax, with a maximum 77% rate. Although the maximum rate was later cut under the Coolidge Administration to 24%, it was still a progressive income tax – and 24% was still a rate that not even the most fervent advocate of the income tax had hoped for in 1913. Similarly, when President Reagan and the Congress enacted the 1986 tax reform bill, creating only two low rates, it took the Congress and Reagan’s successor, George “Read My Lips” H. W. Bush, only 4 years to add two new, higher rates, and thousands of pages, gimmicks, exemptions, and loopholes, thus essentially undoing President Reagan’s tax reform in just 4 years.
The flat [income] tax is not a solution. It would not solve ANY of the problems with the current tax code, the IRS, the 16th Amendment, the income tax itself, or the US political system. Only the FairTax would do that – by doing away with the income tax, the IRS, and the 16th Amendment PERMANENTLY.
It is no coincidence that the FairTax bill now has over 70 sponsors and cosponsors in both houses of Congress (including such conservative stars as Sen. Ted Cruz and Congressman Tom Price), while the flat tax bill has only one sponsor in the Senate and no companion bill in the House.
The flat tax is not a solution to anything and should not even be considered.
In this installment of the FAIRTAX series I want to cover the “pre-bate” provision of the plan. The “pre-bate” is a provision designed to help with the basic necessities of life, to essentially “un-tax” food, medicine, utility costs, clothing, etc. up to the poverty level. It is not designed to help the “rich” buy new cars for their 16 year old as a birthday present, a new plasma TV, or that new boat or other play toy they might want. It is also not designed to allow that “poor” family to buy a plasma TV, or to buy their kids a video game. This means that the basic necessities of life will be tax-free for everyone. The basic necessities of life being tax-free, however, does leave money to help buy these other things if desired, as the decision on how the extra money is spent is up to the members of the particular household. Once again we see the playing field leveled, more money in the hands of We the People, and everyone being treated equally, “equality under the law”, I think the Constitution calls it.
Poverty level spending is defined as the amount of money necessary for a given sized household to buy the essential needs of life as determined each year by the Department of Health and Human Services (DHHS). The amount of the “pre-bate” will differ depending on the number of people in the household, not on how much income is present. I constantly hear about “fairness” from the politicians, but fairness is not really a factor in today’s tax structure. People “paying their fair share of taxes” is a class warfare tactic designed by the political class to divide and conquer We the People, not a tactic designed for actual fairness. Are those paying no income taxes paying their “fair share”? Not in my book, and I am not one of the “rich”.
One benefit of the FAIRTAX pre-bate is that it must be applied for every year. I can’t imagine Bill Gates, Warren Buffett, or other ultra-rich people applying for the Pre-bate so they aren’t likely to benefit. I can only imagine the flack these ultra rich would catch if they applied for something meant to help the least of us in America. The Pre-bate will also only go to those legally residing in the United States. It is designed to reward citizens, and those here legally with the proper work permits and authorization to be a part of our society. Those who work for money under the table pay no taxes now but will pay taxes when they spend their illegally earned wages under the FAIRTAX. They will not be able to participate in the Pre-bate as it is a provision designed to bring wage earners out of the shadows if they want to participate. I find this part rather insignificant compared to the fact that these people will actually be contributing to our tax structure through their purchases as the FAIRTAX will do. They already pay no income taxes and no Social Security or Medicare taxes as those of us legally employed are subjected to. Having the pre-bate will require those working under the table to come out into the light if they desire to benefit from the pre-bate provision.
As a household of 2, my wife and I will not benefit as much from the pre-bate as those who have larger families. It will benefit my children and grandchildren as the money taken off of the cost of the basic necessities of life will provide more money for food, utilities, and the other necessities. When they take the amount of taxes off the price of food, for instance, they can buy more food instead of paying federal taxes with that money. I am looking at the best option for the people of America and I find this to be a very fair and sensible way to implement that
This is the final installment of the “nuts and bolts” of the FAIRTAX. My final installment will cover an overview of what you have seen so far and my conclusions as to the benefits of the FAIRTAX.
I submit this in the name of the Most Holy Trinity, in faith, with the responsibility given to me by Almighty God to honor His work and not let it die from neglect.
November 25, 2011
In Part One, I’ll cover the dangers of taxing consumption as a major source of government revenue, both to the individual and to the economy.
Part Two will cover the little-known problems in the FairTax proposal- the “fine print” FairTax advocates won’t tell you about (or don’t know themselves); I’ll also refute some of the inconsistencies and rhetoric used by FairTax advocates.
Part Three will introduce the reader to the benefits of flat income taxation- why it’s superior to consumption tax, and the economic benefits of flattening the tax code.
Part Four will introduce the reader to the Negative Income Tax Credit- an ideal solution to the the problems of our massive welfare state, which can only be implemented in conjunction with an income tax system.
Part One: Why Not Tax Consumption?
I think it’s safe to say that nobody is happy with our current tax code. It burdens people who want to succeed in business, it favors the largest businesses who can afford to lobby for carve-outs; the enormity of the tax code creates a substantial compliance burden for smaller businesses; and- as already known to those of us on the small-government side of the aisle- 47% of the public pay no income tax at all, while recieving benefits funded by the other 53% who pay.
In our fervor to change the tax code, however, some people have been seduced by the idea of scrapping the tax code entirely: Eliminate income taxation and convert to a national tax on consumption. Whatever problems we currently have, I contend that this conversion would make our tax situation far worse.
Let’s start with defining “consumption”, because even this term creates problems. “Consumption” means the purchase of any good or service.
In a “pure”, or “flat”, consumption tax system, all transactions are taxed. Stated another way, every bill you recieve- your phone bill, your car insurance bill, your cable bill, your garbage removal bill, etc.- would include a consumption tax. Your grocery, fuel, medication, and clothing purchases would include a consumption tax. When you make a major purchase- such as a home or a car- the purchase price would include a consumption tax. If your washing machine or central air conditioning breaks down, the cost of parts and the bill for labor from the appliance repair service would include a consumption tax. If you hire a home health aide, consult an attorney, or visit a doctor, the bill for their services would include a consumption tax. If you own a business, all of the purchases made for your business- “business expenses”- would be subject to consumption tax. Making a deposit at the bank would include consumption tax, since the banking institution is offering a service by accepting your money.
Financial services- such as credit cards or bank loans to purchase a home or a car- would be taxed twice: Consumption tax on the goods purchased, and consumption tax on the service of financing.
Such a “pure” consumption tax would be wholly offensive to the public. Because of this, the major consumption tax schemes seen around the world today are designed to mitigate the impact of taxation on certain purchases. European-style value added tax, or VAT, is a system designed minimize the impact on businesses by allowing companies to recoup taxes paid on supplies. Most state sales taxes in the United States exempt some (but never all) purchases of food and medications. Variable rates are used in some countries to change the tax burden on various products: For example, levying a lower rate on medical devices than on clothing purchases. Certain transactions are exempted from taxation.
This illustrates the fallacy of a basic assumption about consumption taxes: That a consumption tax code would be simpler than an income tax code. As you can see above, there is just as much incentive to over-complicate a consumption tax code as with an income tax code. Most carve-outs found in the federal income tax code are also intended to mitigate the effects of taxing incomes.
It also illustrates a basic problem with consumption tax systems: They are regressive, in that the lower a person’s income, the greater the share of their income is spent on consumption. A tax code can’t predict whether a loaf of bread will be purchased by a well-to-do person, or a homeless person who has panhandled all day to buy it. Fair Tax proponents propose a “poverty grant”, or “prebate”, to alleviate this problem. I will discuss that in Part Two.
This brings us to the “47%”- the 47% of the public who currently pay no federal income tax. It’s easy to think of this 47% as “freeloaders”- and while some of them are, others are clearly not. Many of this group are people whose incomes are currently tax-privileged for good reason: They are Social Security recipients, combat veterans, disabled people, and others whom society has determined should not be burdened with taxation. Also in this group are people who live on already-accumulated (and already-taxed) wealth: Persons living on accumulated retirement savings, for example. They have already paid their “fair share”, and imposing consumption tax on would amount to double-taxing them.
As for the “freeloaders”- this group are problematic because they are net recipients of tax money. They pay less in taxes than they recieve in taxpayer-funded public assistance.
Imposing consumption tax on the “47%” would target precisely the wrong people: It would impose taxation on people we don’t want to burden- such as retirees, veterans, and the disabled- while welfare recipients would continue to be net recipients of tax money. In other words, a consumption tax wouldn’t fix the problem, it would simply add another problem. I will address the problems with our welfare system, and the overlooked solution to most of them, in Part Four.
High consumption taxes also have an effect on behavior: They provide incentive to develop a black market for untaxed goods. Consider a similar black market which already exists here in the United States: the market on tax-free cigarettes sold through Native American reservations, and one can readily see how a tax-free market on other goods could emerge and prosper quickly. And by the way: If the thought of “black market food” doesn’t immediately make you think of a communist country, then I hereby revoke your “Small Government Conservative” card.
Consumptions taxes disproportionately burden businesses, too.
As stated above, in a “flat” consumption tax model, all purchases of goods and services are taxed, including purchases made by businesses; and as already known, any tax on business purchases constitutes the mother-of-all-barriers to growing a business.
With an income tax, it’s relatively easy (though time-consuming) to deduct revenues spent on business expenses from taxation. With a consumption tax, this is decidedly more difficult, since tax is paid at the point-of-sale.
In countries with a VAT, for instance, businesses may recoup, from the government, the amount of taxes paid on expenses at the end of each year; however, the records-keeping burden of doing so is enormous, even more so than the records-keeping burden of our income tax system, because the purchasing business’ records must match perfectly with the selling business’ records.
This system also creates additional work- and additional expense- for government tax agencies: Every business in the country submits a request for reimbursement of taxes paid, every year, which means governments must compare the tax forms submitted by ‘Business A’ against the tax forms of every other business ‘Business A’ has purchased from that year.
It’s no surprise, then, that some countries- Costa Rica, for example- choose to only allow certain expenses to be deducted, in order to minimize this burden of examination. In choosing to limit the types of expenses eligible for deduction, the government makes a conscious decision to tax certain business expenses- which brings us full-circle to the mother-of-all-barriers to business growth mentioned above.
The net effect of this: large businesses are favored, while small businesses remain small. The larger a business, the more easily said business may cope with the intense regulatory burden of records-keeping, or absorb the cost of taxes paid on business purchases. In fact, consumption taxes disproportionately favor vertically-integrated businesses- those companies large enough to own their suppliers- since greater integration means all records-keeping (or all business purchasing) is internal.
Stated another way: Consumption tax schemes are the cronyists’ best friend, since consumption taxes favor already-large businesses and stifle potential competitors by preventing them from growing. (Note: I refuse to dignify the term “crony capitalism”, since it isn’t capitalism at all.)
This being the case, wealth remains generational, and the American dream of working hard, taking risks, and succeeding- and accumulating wealth in the process- becomes impossible. Consider this point: The class warfare rhetoric of socialists- “rich people stay rich, poor people stay poor”- becomes fact when a widespread consumption tax is instituted. This goes part-way to explaining how European nations (early adopters of consumption tax) accepted and embraced socialism at a faster pace than it was accepted here in the United States.
In sum: Consumption taxes as a major source of government revenue keep poor people poor, inhibit growth of small businesses, favor large businesses and ensure that wealth remains generational. Consumption tax schemes cause economies to become stagnant by stifling competition, and promote conditions which breed socialist sympathy and criminality.
If you, the reader, would like to refute these assertions, all you need to do is show me an example of a country which has had a major (i.e., a rate substantially greater than state sales taxes here) consumption tax for more than ten years, where none of these events have taken place. I can confidently issue this challenge, because I know there isn’t such a place.