This is our fifth and final entry about the Fair Tax (perhaps). This analysis has not explored every nuance and consequence that would occur should we radically transform our system of federal taxation from an income-based to a consumption-based model. For example, there are estimates that compliance costs for the present tax structure range from $250 billion to $400 billion per year. With a consumption oriented and simpler tax system, many of these non-productive wasteful costs would be redirected into the general economy. Consider it a “non borrowed stimulus” wherein the taxpayers or businesses choose how the resources are allocated rather than mandated by complex indecipherable tax law. Certainly there would be some application or administrative costs for the Fair Tax and those costs would be higher in the beginning because of the fact that six states are not presently structured to levy the tax at the cash register, but overall the compliance costs should be dramatically lower than we are experiencing in the current system.
As an ardent supporter of liberty and individual choice, I find that the opportunity to have more personal power over my tax liability to be an appealing prospect. I do understand, however, that many of my fellow citizens will not be persuaded by a freedom-based argument. These citizens resist taking responsibility for their government and often confuse government involvement with security. As I stated earlier, I believe that if we could implement the Fair Tax, then a significant portion of the electorate would embrace their new freedom. Perhaps they’ll become motivated to expand their liberty and opportunities. So, how do we sell this puppy? How do we market the concept of enhanced liberty to our cohorts? How, pray tell, do we get it done?
First, we must identify and neutralize the opposition. In my view there are four significant clusters of interest that will forcefully resist any attempt to change the present federal tax mechanism. The first group is comprised of the entrenched political power structure. The politicians and their bureaucratic sidekicks relish the complexity of the current system because it allows them to tweak, to alter, and to manipulate the system to advance their preferred social agendas or to reward/punish various sectors of the nation’s citizens. The second source of fierce opposition will be the Internal Revenue Service bureaucracy and the legions of people throughout the fruited plain who benefit from trying to decipher the snarled convoluted tax code. Their livelihoods are anchored to the impossible-to-understand, always potentially punitive system that current intimidates so many of our citizens.
Corporations and special interest groups who are reaping benefits from extra consideration in the existing code will battle to retain their favored status. They are the ones who have proven themselves adept at manipulating the system (with the assistance of their treasured politicians) for their own benefit. Sometimes the tax code provides them an advantage by negatively affecting their competitors. At any rate, they may resist a more level playing (paying?) field. The final groups who will scream and howl if the Fair Tax is chosen are those individuals who gain from the current system through the Earned Income Tax Credit (EITC) and the child deduction. The prebate aspect of the Fair Tax may squelch a lot of their discontent, but there are many advocates for the tax-break recipients who will forecast massive starvation in the streets if the EITC, in particular, is ended. The opposition will be fierce and relentless, but I, nevertheless, hold to the proposition that implementing the Fair Tax will provide a large enough taste of freedom that our citizens may be more willing to consider constitutional government.
So, how do we sell it? First we have to acknowledge that many of us have a sense of entitlement that has been nurtured by the Nanny State, so appeals to the constitution, smaller government and more individual freedom will not resonate for a large portion of our audience. The bottom line is to replicate the tactics of the progressives by promoting blatant self interest, opportunism and perceived class warfare. Self interest is “keeping all of your check.” The approach would be to encourage everyone to carefully examine her/his check…the gross, then the net, and sell the sizzle: the all new Fair Tax will give you an instant raise by allowing you to KEEP YOUR OWN MONEY.
Winning the support of the political class is more difficult, but it can be done with a good amendment, a workable transition plan and raw political power. The power aspect will arise after the initial sales campaign to the citizenry. Following an “underground orientation” period to inform and develop the key cadre of supporters, then the massive education campaign for the citizens, the next step would be to organize “committees of correspondence (sound familiar?)” to bombard the legislators and other political types. As it develops, the organizational structure should be wide and deep enough to convince the politicos that the movement is real and is strong. We must remember that freedom is merely a byproduct for the average American. Keep your own money is the primary motivating message.
The business and special interest classes should be persuadable through reason and number crunching. I do understand, however, that they are not homogeneous…that each sits in a different niche. The Fair Tax, though, would drastically reduce paperwork for them, and make budgeting and planning much easier. The subsidized poor would probably embrace the concept of the Fair Tax with the prebate, but the real hostility will come from the poverty lobby. They have the same reverence for an easily manipulated tax structure as do the corporate honchos and the political harlots. Theirs will be a noisy, accusative, screeching, cacophony of doom that will occur if the Fair Tax is implemented. In a sense, they may be the most difficult constituency to counter because many in the mass media will provide them with a platform. This inevitability requires that an aggressive media campaign be implemented concurrent with the roll-out of the concept.
Can the Fair Tax be an effective and reasonable improvement over the present labyrinth of taxation? Yes, I believe, although I still have constitutional and philosophical reservations about it. I do believe that it is vastly better than what we now have. It is fairer (a little). It is less intrusive (somewhat). It allows for more personal freedom (it’s a step). It is too much money (that revenue-neutral thingy), but we can limit it to a percentage of sale maximum or a calculated amount based on a percentage of GDP.
It is a start, only a start. Our liberty has yet to be secured.
Comment: earl4sos@gmail.com or cearlwriting@hotmail.com
Friday, December 3, 2010
Thursday, December 2, 2010
Fair Thee Well
My ears are buzzing with your silent questions. Charlie, what about the poor? And, and …the underground economy? Well, take heart, Binky; we have some answers for you. The Fair Tax as currently designed does have an allowance for those who have lower incomes. Generally, I would find such an offset to be discriminatory because it does seem to impose a “progressive” element to the levying of the tax. There is, however, a mitigating aspect that I find acceptable. When implemented, the Fair Tax would provide a “prebate” to EVERYONE that represents 23% of the federally-designated poverty line for each respective household or person. For example, a single person living alone would receive a monthly prebate via direct deposit of $207.58. This figure represents 23% of the 2010 poverty level income of $10,830.00 for one person. For a family of four the prebate amount would be $422.63 which is 23% of the 2010 poverty level income for four of $22,050.00. So, the poor, the rich and the in-between would ALL get a direct deposit at the beginning of every month which, to some degree, minimizes the effect of the tax on individual taxpayers.
Earlier we discussed the embedded tax on current products and services. I’m going to provide an example of how those hidden costs accumulate. This analysis will not be exhaustive, but I do hope that it will be illustrative. Let’s use bread for our example. It’s a commodity that is purchased by nearly every household in the nation. To arrive at a true number for embedded taxes on bread, one would have to pro-rate all the federal taxes paid by the farmer, the grain elevator or buyer, the miller who grinds the flour or cracks the grain, the baker, the supermarket and all the miscellaneous shippers, truckers and handlers who facilitate the movement of the grain. Also, included in the final tally would be the pro-rated federal taxes for the seed distributor, the fertilizer provider (if used) and whatever extraneous treatments are needed to preserve the crop. Who knew that a tiny little grain of wheat or oats or barley or rye would be such a prolific generator of tax dollars for Big Brother and lots of paperwork for the private sector? Now that “faith of a mustard seed” analogy makes more sense, doesn’t it? There’s lots of power in those little seeds or grains.
When considering the example cited above, please remember than your dedicated public servants in Washington have been considering a Value Added Tax for debt reduction (yeah, right). Every step in the process from seed to bread to seed that adds value to the tiny little botanical grain would add more tax. Sneaky S.O.B.’s want your money, but also want to hide its collection from you.
There is a huge benefit that results from the Fair Tax that is often overlooked or minimized. When taxes are paid on final consumption, then every drug dealer, hooker, criminal thug and international tourist will be paying “their fair share.” Also, every individual who has entered the United States illegally will contribute to the tax coffers when they purchase something. In other words, a broad range of the underground economy will be forced into the sunlight merely because of their needs for routine products and services. When that inbred Saudi Prince brings his extended family and retinue of servants to Cleveland while commandeering an entire wing of a world-class hospital, his lavish lifestyle will generate a large sum of Fair Tax receipts….and no prebate for Abdullah.
So, you may ask, when the Fair Tax merely offsets the embedded tax, how can that be revenue neutral? How can those limited sources of money…minus the prebates…actually equal all the dollars collected from the hundreds or thousands of taxes that are in the government’s quiver today? It’s simple, Boy Wonder. No exemptions. Let me repeat that. No exemptions. No special clauses in the code. No non-profit ruses. No artificially structured entities to game the tax code. We all ride on the same pond, but we can choose our own boat. New Lexus versus used Lexus. Bakery bread versus Bunny Bread versus day old bread. Sears or Jenn-Aire. Freedom…it’s a beautiful thing. Political freedom is vital for a nation to thrive economically, intellectually and politically. Perhaps, just perhaps when the semi-comatose sheeple of our nation savor the taste of economic freedom, they will understand how desirable liberty is. Maybe then, they’ll finish the job.
Tomorrow I’ll explore how I believe that the Fair Tax can be sold, promoted and implemented.
Comments: earl4sos@gmail.com or cearlwriting@hotmail.com
Earlier we discussed the embedded tax on current products and services. I’m going to provide an example of how those hidden costs accumulate. This analysis will not be exhaustive, but I do hope that it will be illustrative. Let’s use bread for our example. It’s a commodity that is purchased by nearly every household in the nation. To arrive at a true number for embedded taxes on bread, one would have to pro-rate all the federal taxes paid by the farmer, the grain elevator or buyer, the miller who grinds the flour or cracks the grain, the baker, the supermarket and all the miscellaneous shippers, truckers and handlers who facilitate the movement of the grain. Also, included in the final tally would be the pro-rated federal taxes for the seed distributor, the fertilizer provider (if used) and whatever extraneous treatments are needed to preserve the crop. Who knew that a tiny little grain of wheat or oats or barley or rye would be such a prolific generator of tax dollars for Big Brother and lots of paperwork for the private sector? Now that “faith of a mustard seed” analogy makes more sense, doesn’t it? There’s lots of power in those little seeds or grains.
When considering the example cited above, please remember than your dedicated public servants in Washington have been considering a Value Added Tax for debt reduction (yeah, right). Every step in the process from seed to bread to seed that adds value to the tiny little botanical grain would add more tax. Sneaky S.O.B.’s want your money, but also want to hide its collection from you.
There is a huge benefit that results from the Fair Tax that is often overlooked or minimized. When taxes are paid on final consumption, then every drug dealer, hooker, criminal thug and international tourist will be paying “their fair share.” Also, every individual who has entered the United States illegally will contribute to the tax coffers when they purchase something. In other words, a broad range of the underground economy will be forced into the sunlight merely because of their needs for routine products and services. When that inbred Saudi Prince brings his extended family and retinue of servants to Cleveland while commandeering an entire wing of a world-class hospital, his lavish lifestyle will generate a large sum of Fair Tax receipts….and no prebate for Abdullah.
So, you may ask, when the Fair Tax merely offsets the embedded tax, how can that be revenue neutral? How can those limited sources of money…minus the prebates…actually equal all the dollars collected from the hundreds or thousands of taxes that are in the government’s quiver today? It’s simple, Boy Wonder. No exemptions. Let me repeat that. No exemptions. No special clauses in the code. No non-profit ruses. No artificially structured entities to game the tax code. We all ride on the same pond, but we can choose our own boat. New Lexus versus used Lexus. Bakery bread versus Bunny Bread versus day old bread. Sears or Jenn-Aire. Freedom…it’s a beautiful thing. Political freedom is vital for a nation to thrive economically, intellectually and politically. Perhaps, just perhaps when the semi-comatose sheeple of our nation savor the taste of economic freedom, they will understand how desirable liberty is. Maybe then, they’ll finish the job.
Tomorrow I’ll explore how I believe that the Fair Tax can be sold, promoted and implemented.
Comments: earl4sos@gmail.com or cearlwriting@hotmail.com
Wednesday, December 1, 2010
Going to the Fair
Today I wish to explore some of the lesser known benefits of the Fair Tax. As we briefly mentioned in previous columns the Fair Tax would (as currently structured) eliminate all federal taxes on individuals and businesses except for excise taxes, extraction taxes (mining etc.) and fees. The AMT, the alternative minimum tax, is one that would be discarded under this proposal. The AMT is a noxious class-warfare, social-engineering device that was levied to capture tax dollars from high and middle income families who were/are entitled to deductions that, in effect, reduce their tax obligation to nothing or peanuts. In other words, even if you complied with the tax code and legally deducted expenses to which you were entitled, your government decided that you should pay taxes anyway—deductions be damned. This gem of equity was initiated in 1969 and updated in 1982 and is NOT indexed for inflation. So, in essence, some 18 years after the “update,” we find that middle income people are being pounded by this surcharge. This unethical tax that surprises so many citizens on April 15th will be tossed into the dustbin if the Fair Tax becomes law.
One of the engines of a vibrant economic system is capital (the others are freedom, creativity and effort). When you as a wage earner have paid your taxes, provided a living for your family and perhaps purchased a home, you may take whatever amount of money remaining and invest it. You have already paid taxes on it, remember. You may start a business, buy some land, a mutual fund or stock. When at a later time, you decide to sell your investment because you’ve retired or you have large expenses, then the government assesses you for your capital gain. These funds are, in effect, removed from the pool for business expansion and job creation. This job-killing, enterprise-choking tax will not exist under the Fair Tax.
Our present tax code is contained in more than 40,000 (yes, 40 thousand) pages. It is nightmarish in its complexity, and there is a multitude of anecdotal accounts of people calling the IRS for help and receiving conflicting information. In other words, the code is too difficult for the enforcers to understand. This phenomenon leads to an environment whereby it is nearly impossible for a long-form tax filer to be in total compliance. In a sense, even if you were diligent and patriotic, it might be possible to find you in violation of some obscure or vague regulation. Additionally, many wage earners and salaried people are unaware of the size of their federal tax bill. They live their lives based on the “net amount” in the paychecks without calculating the difference between gross and net. One of the beauties of the Fair Tax is its transparency. The employed individual receives the entire paycheck less VOLUNTARY deductions then is fully cognizant of the tax liability when a transaction occurs.
Earlier I discussed the complex maze that is the current tax code. There are two primary reasons for the existence of such an unintelligible mess: 1) special favors and exemptions (vote buying); and 2) stealth taxes. Members of Congress become nearly orgasmic when they can secure benefits in the tax code for well-heeled and politically generous sectors, corporations or individuals. Coincidentally, campaign contributions often correlate with the special benefits legislation. Hmmm, there’s a pattern developing here, Claudine. The Fair Tax will stop the protective backslapping buddy system that is our current tax code…if the amendment is written tightly enough to prevent “tweaking” for special interests. The “stealth” tax elements are those “minor” adjustments that appear to have little effect, but in the aggregate have a negative impact on taxpayers and the economy. The AMT is a prime example of a stealth tax that originally was targeted toward wealthy tax “avoiders” but has become just another broad-based “revenue enhancement.” Other stealth taxes could be the “tweaking” of the “progressive” brackets or altering the brackets on any number of tax schemes or schedules. The openness of the Fair Tax would minimize political opportunities for reaching into our purses and wallets.
One more benefit that I wish to discuss is the impact of the Fair Tax on non-profits. Presently many organizations operate under the umbrella of a non-profit, but actually promote political agendas. These so-called non-profits are exempt from federal corporate taxes. A couple of the more prominent examples of such entities are ACORN and NPR. NPR, for example, is a money swallowing shell game with its nearly incessant fund raising meanwhile it avoids paying federal taxes while the commercial sector must comply. The Fair Tax would eliminate this inequity without eroding the purchasing power of the public broadcast property. I should note here that I am adamantly opposed to “public broadcasting,” but until Congress sees fits to cease funding it, we can level the playing field as much as possible. Churches that function as non-profits would realize a massive advantage with the Fair Tax. Under the current system they operate as if their First Amendment rights for political speech have been sacrificed upon the altar of “tax free” status. With no appreciable differential in cash flow requirements, the Fair Tax would relieve churches of the fear that their status could be changed by the IRS if it were decided that they were “political.” Political speech is the most protected of all speech, and it seems to me that churches should speak without fear of retribution from the government. In my view, every church member with a conscience should support the Fair Tax for this reason alone.
More tomorrow. Comment: earl4sos@gmail.com or cearlwriting@hotmail.com
One of the engines of a vibrant economic system is capital (the others are freedom, creativity and effort). When you as a wage earner have paid your taxes, provided a living for your family and perhaps purchased a home, you may take whatever amount of money remaining and invest it. You have already paid taxes on it, remember. You may start a business, buy some land, a mutual fund or stock. When at a later time, you decide to sell your investment because you’ve retired or you have large expenses, then the government assesses you for your capital gain. These funds are, in effect, removed from the pool for business expansion and job creation. This job-killing, enterprise-choking tax will not exist under the Fair Tax.
Our present tax code is contained in more than 40,000 (yes, 40 thousand) pages. It is nightmarish in its complexity, and there is a multitude of anecdotal accounts of people calling the IRS for help and receiving conflicting information. In other words, the code is too difficult for the enforcers to understand. This phenomenon leads to an environment whereby it is nearly impossible for a long-form tax filer to be in total compliance. In a sense, even if you were diligent and patriotic, it might be possible to find you in violation of some obscure or vague regulation. Additionally, many wage earners and salaried people are unaware of the size of their federal tax bill. They live their lives based on the “net amount” in the paychecks without calculating the difference between gross and net. One of the beauties of the Fair Tax is its transparency. The employed individual receives the entire paycheck less VOLUNTARY deductions then is fully cognizant of the tax liability when a transaction occurs.
Earlier I discussed the complex maze that is the current tax code. There are two primary reasons for the existence of such an unintelligible mess: 1) special favors and exemptions (vote buying); and 2) stealth taxes. Members of Congress become nearly orgasmic when they can secure benefits in the tax code for well-heeled and politically generous sectors, corporations or individuals. Coincidentally, campaign contributions often correlate with the special benefits legislation. Hmmm, there’s a pattern developing here, Claudine. The Fair Tax will stop the protective backslapping buddy system that is our current tax code…if the amendment is written tightly enough to prevent “tweaking” for special interests. The “stealth” tax elements are those “minor” adjustments that appear to have little effect, but in the aggregate have a negative impact on taxpayers and the economy. The AMT is a prime example of a stealth tax that originally was targeted toward wealthy tax “avoiders” but has become just another broad-based “revenue enhancement.” Other stealth taxes could be the “tweaking” of the “progressive” brackets or altering the brackets on any number of tax schemes or schedules. The openness of the Fair Tax would minimize political opportunities for reaching into our purses and wallets.
One more benefit that I wish to discuss is the impact of the Fair Tax on non-profits. Presently many organizations operate under the umbrella of a non-profit, but actually promote political agendas. These so-called non-profits are exempt from federal corporate taxes. A couple of the more prominent examples of such entities are ACORN and NPR. NPR, for example, is a money swallowing shell game with its nearly incessant fund raising meanwhile it avoids paying federal taxes while the commercial sector must comply. The Fair Tax would eliminate this inequity without eroding the purchasing power of the public broadcast property. I should note here that I am adamantly opposed to “public broadcasting,” but until Congress sees fits to cease funding it, we can level the playing field as much as possible. Churches that function as non-profits would realize a massive advantage with the Fair Tax. Under the current system they operate as if their First Amendment rights for political speech have been sacrificed upon the altar of “tax free” status. With no appreciable differential in cash flow requirements, the Fair Tax would relieve churches of the fear that their status could be changed by the IRS if it were decided that they were “political.” Political speech is the most protected of all speech, and it seems to me that churches should speak without fear of retribution from the government. In my view, every church member with a conscience should support the Fair Tax for this reason alone.
More tomorrow. Comment: earl4sos@gmail.com or cearlwriting@hotmail.com
Tuesday, November 30, 2010
More Fair, Less Taxing
Following yesterday’s entry, I received feedback from several readers. So, before diving into today’s discussion, I will address several of their concerns. By all means, the Fair Tax should NOT be implemented unless and until the 16th Amendment has been repealed. In addition, the IRS must be abolished. If the Fair Tax were to be utilized, then the respective states would be the “tax collectors” for the federal government. Currently 44 of our 50 states have a state sales tax which means that they are equipped for including the Fair Tax on the cash registers within their domains. One advantage of moving our tax system to a consumption basis rather than a labor/capital base as it is now is that the states will be collecting the tax and will have the means to enforce 10th Amendment/nullification issues by withholding the portion of federal taxes that are used for unconstitutional activities. It’s called the power of the purse.
As an ardent supporter of Constitutional principles, I fully understand that the federal leviathan was originally intended to rely on Fees, Duties, Imposts and Excise taxes to fund its operations. Clearly the size, reach and cost of the federal monstrosity have far exceeded its constitutional mandate. My personal view is that we could return to constitutional government and tax policy overnight. We would undoubtedly suffer some upheaval and dislocation, but freedom is a marvelous thing. Observe an animal that has been released from its cage or its tether. In the beginning the poor creature is tentative and fearful, but in most cases begins to explore the broader environment with gusto. Again, I believe that the cold turkey approach could be effective, but ……… it’s not politically feasible.
My reasons for preferring a modified version of the Fair Tax are rooted in political reality. To attempt to massively reduce government, radically alter the tax structure and diminish the power of politicians and bureaucrats would generate a flurry of opposition from those who govern us and from many of those who are governed. My primary purpose for choosing the Fair Tax as a transitional mechanism is that I believe that a “little taste of freedom” may trigger the urge for more of it. Secondly, the income tax and its progressive incarnation are absolutely evil. You own your body, your labor and your property. The taxation of labor is a form of piecemeal slavery, and it is compounded by the withholding of tax liabilities before the worker or citizen receives the fruits of labor (pay). The government gets its portion of your labor before your receive the remainder. That is wrong. God Almighty asked the Hebrews to give Him the first 10% of their earnings. Today, the government insists on the first dollar and more. Personally, I do not believe that the government has a greater interest in my labor than does God. This example is illustrative of the insistence by government to be the preeminent factor in every facet of our lives. We are much better served with government stays in the background while protecting our borders and guarding our God-given rights. When the state becomes the dominant principal in our lives, then our liberty has been dangerously usurped. Just as a toddler requires constant supervision and instruction, the ward of the Nanny State must have every aspect of life controlled.
My vision of a Fair Tax Amendment (following or concurrent with repeal of the 16th) would include a proviso that sets the upper limit for the tax at 23%, and would include strict unambiguous language that limits the tax to new products sold at retail (final consumer destination). Also, I would include two more elements, or place them in a separate accompanying amendment, that would require a balanced budget with no new tax avenues available, and constitutionally establish a drop down feature of the tax. For example the tax rate could be reduced one per cent (1%) every two years, thus resulting in an effective rate of 13% after 20 years. While this number may not force the federal government to live within constitutional parameters, it would demand very serious prioritizing. The 13% figure is not nearly as stringent as it may appear because the tax structure and the overall lower level of taxation will boost economic activity, and thus, generate significant revenues.
We’ll pick up the balance of this discussion tomorrow.
Comment: earl4sos@gmail.com or cearlwriting@hotmail.com
As an ardent supporter of Constitutional principles, I fully understand that the federal leviathan was originally intended to rely on Fees, Duties, Imposts and Excise taxes to fund its operations. Clearly the size, reach and cost of the federal monstrosity have far exceeded its constitutional mandate. My personal view is that we could return to constitutional government and tax policy overnight. We would undoubtedly suffer some upheaval and dislocation, but freedom is a marvelous thing. Observe an animal that has been released from its cage or its tether. In the beginning the poor creature is tentative and fearful, but in most cases begins to explore the broader environment with gusto. Again, I believe that the cold turkey approach could be effective, but ……… it’s not politically feasible.
My reasons for preferring a modified version of the Fair Tax are rooted in political reality. To attempt to massively reduce government, radically alter the tax structure and diminish the power of politicians and bureaucrats would generate a flurry of opposition from those who govern us and from many of those who are governed. My primary purpose for choosing the Fair Tax as a transitional mechanism is that I believe that a “little taste of freedom” may trigger the urge for more of it. Secondly, the income tax and its progressive incarnation are absolutely evil. You own your body, your labor and your property. The taxation of labor is a form of piecemeal slavery, and it is compounded by the withholding of tax liabilities before the worker or citizen receives the fruits of labor (pay). The government gets its portion of your labor before your receive the remainder. That is wrong. God Almighty asked the Hebrews to give Him the first 10% of their earnings. Today, the government insists on the first dollar and more. Personally, I do not believe that the government has a greater interest in my labor than does God. This example is illustrative of the insistence by government to be the preeminent factor in every facet of our lives. We are much better served with government stays in the background while protecting our borders and guarding our God-given rights. When the state becomes the dominant principal in our lives, then our liberty has been dangerously usurped. Just as a toddler requires constant supervision and instruction, the ward of the Nanny State must have every aspect of life controlled.
My vision of a Fair Tax Amendment (following or concurrent with repeal of the 16th) would include a proviso that sets the upper limit for the tax at 23%, and would include strict unambiguous language that limits the tax to new products sold at retail (final consumer destination). Also, I would include two more elements, or place them in a separate accompanying amendment, that would require a balanced budget with no new tax avenues available, and constitutionally establish a drop down feature of the tax. For example the tax rate could be reduced one per cent (1%) every two years, thus resulting in an effective rate of 13% after 20 years. While this number may not force the federal government to live within constitutional parameters, it would demand very serious prioritizing. The 13% figure is not nearly as stringent as it may appear because the tax structure and the overall lower level of taxation will boost economic activity, and thus, generate significant revenues.
We’ll pick up the balance of this discussion tomorrow.
Comment: earl4sos@gmail.com or cearlwriting@hotmail.com
Monday, November 29, 2010
Whatever's Fair
The FairTax is innovative, reasonable and frequently misrepresented. Indeed, it is a consumption tax that is collected at the point of final sale on new products…used items are exempt because the underlying premise is that something should not be taxed more than once. As it has been proposed, the FairTax replaces nearly all existing federal taxes (income, AMT, corporate, Social Security, Medicare, gift, estate) on a revenue-neutral basis. As designed the FairTax would NOT replace certain excise taxes such as the gasoline tax, the communication (telephone, internet) tax and selective limited resource extraction taxes. The greatest weakness of the FairTax proposal, in my view, is that it does not address massive government spending, although I understand the reasoning for this posture---to minimize opposition and simplify the argument. My preference is that we eliminate the excise (hidden) taxes as well, and offset their revenues with spending cuts. If this scenario can be achieved, then no one pays ANY federal tax until they consummate a purchasing transaction for a product or service.
The analysts have concluded that as originally constructed, a FairTax of 23% on every new product or service would offset the monies generated by the non-excise sector of the federal tax code. Their examination has yielded that each domestic commercial transaction carries with it an “embedded” tax of roughly 22%. That means that throughout the cycle of the product or service from raw material to finished product/delivered service, the various federal taxes that are levied at each stage of the process comprise approximately 22% of the final cost to the consumer (taxpayer). At first glance one might assume that the FairTax would be more costly for the taxpayer (23% vs. 22% embedded). Okay, it’s math time.
For the sake of clarity and as a fiscally responsible commentator, I will assume for this model that the actual impact of the “embeds” is a mere 18%. If the price of an item is $ 1.00 (one dollar), then the REAL cost without taxes would be eighty-two cents ($.82)(1.00-.18=.82). When we add the FairTax to the cost of the product or service, we note that amount to be $1.0086 or $1.01. So, if the embedded amount is only 18% versus the 22%, then the final transaction COULD be a penny higher than it is under the present structure…….BUT remember, you are not paying withholding taxes for income, FICA or Medicare. Let’s assume that you have 19 exemptions and pay NO income tax. Your FICA rate of 7.65% means that even IF the cost of goods and services were to rise by one per cent, you will continue to net 6.65% of your gross income for saving, additional purchases…whatever you desire. I truly believe that this is a very conservative estimate. In my view, your net yield will be much larger which in turn would generate more economic activity.
The previous discussion has overlooked an important “embedded” benefit. Just as the individual wage earner/taxpayer will not be required to pay the FICA tax, neither will the employer. This outcome could lead to lower prices, more capital investment or higher profits and wages. Any of these results would provide a benefit for the economy.
So, the easy question is how does this FairTax concept really help the taxpayer? And the easy answer is …more freedom. Your overall tax liability will, in a large measure, be determined by you. Need a car? Well, purchase a Kia and pay a relatively low tax, buy a Lexus and pay a higher sum,…..or buy a late-model used Cadillac and pay NO tax. The choice is yours. You choose. Acquire your clothes from high-end thrift shops and pay no tax. Have a garage/lawn sale and be legal, for once, by collecting no tax.
Tomorrow we’ll examine how to offset the lower incomes of the poor, and examine the mechanism for implementing the FairTax as a REPLACEMENT not an ADDITION to the current tax nightmare. Please check out www.fairtax.org .
Comment: earl4sos@gmail.com or cearlwriting@hotmail.com
The analysts have concluded that as originally constructed, a FairTax of 23% on every new product or service would offset the monies generated by the non-excise sector of the federal tax code. Their examination has yielded that each domestic commercial transaction carries with it an “embedded” tax of roughly 22%. That means that throughout the cycle of the product or service from raw material to finished product/delivered service, the various federal taxes that are levied at each stage of the process comprise approximately 22% of the final cost to the consumer (taxpayer). At first glance one might assume that the FairTax would be more costly for the taxpayer (23% vs. 22% embedded). Okay, it’s math time.
For the sake of clarity and as a fiscally responsible commentator, I will assume for this model that the actual impact of the “embeds” is a mere 18%. If the price of an item is $ 1.00 (one dollar), then the REAL cost without taxes would be eighty-two cents ($.82)(1.00-.18=.82). When we add the FairTax to the cost of the product or service, we note that amount to be $1.0086 or $1.01. So, if the embedded amount is only 18% versus the 22%, then the final transaction COULD be a penny higher than it is under the present structure…….BUT remember, you are not paying withholding taxes for income, FICA or Medicare. Let’s assume that you have 19 exemptions and pay NO income tax. Your FICA rate of 7.65% means that even IF the cost of goods and services were to rise by one per cent, you will continue to net 6.65% of your gross income for saving, additional purchases…whatever you desire. I truly believe that this is a very conservative estimate. In my view, your net yield will be much larger which in turn would generate more economic activity.
The previous discussion has overlooked an important “embedded” benefit. Just as the individual wage earner/taxpayer will not be required to pay the FICA tax, neither will the employer. This outcome could lead to lower prices, more capital investment or higher profits and wages. Any of these results would provide a benefit for the economy.
So, the easy question is how does this FairTax concept really help the taxpayer? And the easy answer is …more freedom. Your overall tax liability will, in a large measure, be determined by you. Need a car? Well, purchase a Kia and pay a relatively low tax, buy a Lexus and pay a higher sum,…..or buy a late-model used Cadillac and pay NO tax. The choice is yours. You choose. Acquire your clothes from high-end thrift shops and pay no tax. Have a garage/lawn sale and be legal, for once, by collecting no tax.
Tomorrow we’ll examine how to offset the lower incomes of the poor, and examine the mechanism for implementing the FairTax as a REPLACEMENT not an ADDITION to the current tax nightmare. Please check out www.fairtax.org .
Comment: earl4sos@gmail.com or cearlwriting@hotmail.com
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