FAIR TAX: What is it, what isn’t it, and how it can help.

FAIR TAX:  What it is, what isn’t it, and how it can help. 

“Only the State obtains its revenue by coercion.”  – Murray Rothbard

In 1997, the Fair Tax idea officially became a group known as:  Americans for Fair Taxation.  Two year later, it was officially introduced as a bill in Congress.  If you care to investigate the specific language of the proposals, Google the House Bill H.R. 25 or the Senate bill S1025 or fairtax.org.  I will give you the highlights of the proposal:

  1. You receive 100% of your paycheck.  No Federal deductions for any reason.
  2. Levy a National Sales Tax to be paid at FINAL sale of NEW goods and services.
  3. Establish a Federal Sales Tax on all goods and services:  23%
  4. Everyone pays:  Citizens; Illegal aliens; businesses, and governments. Everyone.
  5. Monthly rebate paid to every household, up to the determined poverty level:
  6. IF you are an illegal alien – no money for you.
  7. Social Security and Medicare benefits remain unchanged and enforce.
  8. No self-employment tax
  9. No capital gains tax
  10. No gift, estate, corporate, or payroll tax
  11. No tax forms; no annual filing; and no income tax recording of any kind
  12. No tax on exported goods.

WOW!  It sounds simple, but how can it work?  It sounds too good to be true.  Who is behind the proposal or supporting the Fair Tax?  Ok, ok, I am sure the myriad of questions are popping around your mind.  Let me discuss the merits of the proposal, along with some details, and perhaps many of your questions will be satisfied.

Neal Boortz, Sean Hannity, John Stossel, Herman Cain, me, and millions of others support the Fair Tax initiative.  Unlike the Healthcare proposal that encompassed more than 2000 pages or the current IRS Tax code exceeding 67,000 pages; the Fair Tax bill is 131 pages.  Simple in form; reduces Federal expenses and is extremely FAIR to everyone.  Huh?  No, I am serious…No exemptions, exclusions, or benefits to one group or another.

Every good imported to the United States is treated the same as a domestic good with the same tax.  No business or industry has an advantage.  Hmmm, no special interests?  Everyone treated equally: rich or poor; young or old; citizen or foreigner; small business, LLC, sole proprietor, or corporation; city, township, county, state or federal government.  Everyone pays the same rate, no discrimination, because everyone pays the tax and has a choice about paying it.

Huh?  A choice?  Yes, a choice.  For example, you have a choice to buy or not to buy something just as you do now.  The difference is by not purchasing, you do not pay a tax.  When you buy something new, you pay the tax.  Not only do you have more money to pay your bills, but also you have the choice to save more for retirement, college, or other needs.  You decide what is best for you.

Let’s run through an example of how it works before continuing further.  Let’s say your television stops working and you need a new one.  Therefore, you make a trip down to Best Buy; examine your options, brands, and price.  Regardless of the brand name:  Visio, Panasonic, or Sony, the price you see is the price you pay out the door.  The tax is built into the price and not collected at the end sale.  The corporation is responsible for collection and payment to the government.

For this next level of discussion, I rely upon the book:  FairTax:  the truth, by Neal Boortz and Congressman John Linder.  All statements are from the book as they have encountered every conceivable objection or criticism of the Fair Tax plan.

“Under our current income tax system, the top 1% of all income earners actually earn 19% of all income, while paying over one-third of all income taxes.  The top 5% of income earners claim one third of all income, yet they pay 57% of all taxes.  The Bureau of Economic Analysis tells us Americans earned $10.3 Trillion in personal income in 2005.  The IRS tells us that the adjusted gross income on 2005 individual income tax returns was only $7.2 Trillion and after deductions the modified income was only $5.1 Trillion.”

In 2005, total personal consumption exceeded personal taxable income by 70%….because consumption comes from three basic sources:  income, savings, and borrowing.  Stating the obvious, income only comes from income.  Our point?  Fair Tax opponents will tell you that the consumption base, the base for the National Sales Tax, isn’t stable and cannot be trusted – but in reality it’s the income base that’s unstable and can’t be trusted.  The consumption base is much more predictable.”

The Fair Tax is a uniform national sales tax, making collection simple and easy…it applies to absolutely all consumer purchases.  The Fair Tax treats all governments – federal, state, and local – as individual consumers.  Why would you tax the government?  For this one let’s turn to the President’s Advisory Panel on Federal Tax Reform which came to the same conclusion that we did:  “The rationale for this treatment is to prevent federal, state, or local government from having an advantage over the private sector in areas where the two might compete to supply similar product.” 

“If you begin with the common, entirely rational assumption that no government can provide goods or services to anyone as efficiently as a private business, why not encourage governments to get out of the competitive marketplace for any services not uniquely the province of government.”

No, this does not increase the cost of government.  “First, all levels of government already pay taxes.  The income and payroll taxes that government deducts from the checks of government employees – plus the employers portion of the payroll tax.” … “One more thing:  Who would benefit from government paying The Fair Tax?  Why, that would be the government.”

Ever hear of the Tax gap?  “In 2001, the IRS reports that it collected $345 Billion less than it was owed-or about 16% of all that was owed, a figure known as the tax gap.  The IRS is always quick to produce statistics detailing the shortfall in the collection of income taxes.  It doesn’t seem quite as eager to estimate the shortfall in tax payments from income earned by the underground economy….following us here?  The IRS, in other words, is happy to let us know how much money it’s losing to those who cheat on their tax returns – but they’d prefer not to talk about how much it’s losing to the underground economy.”

At some point, those participating in the underground economy spend the money they earn on stuff and the Fair Tax captures revenues missed by our current tax system.  Pretty cool, huh.  Much, much more is available to you, and as I stated earlier, do your homework.  Learn about the Fair Tax and the absolute benefits to you, me, and America.  It is the right time to change and change for the better.

Homework: 

Movie:                        “Other People’s Money”

Books:                       

  • Fair Tax, Neal Boortz
  • The Theory of Money and Credit – Ludwig von Mises

Websites:



Categories: Solutions, Taxes

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