FAIRTax®
Real Tax Reform
Two essays
We can permanently and immediately improve our economy by repealing the sixteenth amendment to the Constitution which authorizes taxes on income. Except for an emergency Civil War income tax from 1861 to 1872, the U.S. relied only on tariffs and excise taxes and became the world’s richest nation. In 1913 progressives in both parties imposed the income tax on the wealthiest but it quickly expanded to most earners. Payroll taxes are direct employment taxes; Social Security taxes began in 1937, and Medicare taxes began in 1965.
Whatever is taxed, its costs are raised, and demand for it falls. Income and payroll taxes raise the costs of work, earning and saving. Savings are essential to avoid poverty; financial consultants urge us to “pay yourself first,” but with income and payroll tax withholding, this is impossible. Sixty two percent of Americans have no savings while household consumer debt is near record levels.
Consider a single person with a gross salary of $48,000 per year. The employer must also fund payroll taxes of 7.65% for Social Security and Medicare, plus Unemployment Insurance, averaging 0.6%, which adds up to 8.25%. The worker’s cost to the employer is $52,000. The worker also pays 7.65% payroll taxes plus $5200 in federal income tax (2017 rate), so the worker nets $39,000. In this example, the labor cost to the employer is 33% greater than the benefit to the worker. Income and payroll taxes are corrosive to work relationships.
We can abolish taxes on jobs and income and replace them with one progressive consumption tax. The well-researched Fair Tax, HR 25 and S 18, was designed by economists and independently tested by dynamic econometric models that predict much higher economic growth compared to the current system with the lowest third of income earners experiencing the greatest improvement. To read more about the estimated effects of the Fair Tax choose the following link: https://fairtax.org/research-library/the-economy .
The Fair Tax would abolish all federal income, payroll, business, gift and estate taxes. In their place would be a 23% retail sales tax on services and new goods. Used goods will be exempt. A monthly rebate from Social Security will un-tax spending up to the official poverty level. In 2018, the electronic rebate would be $233 per month for every legal resident adult and $83 per child. The rebate would be adjusted for inflation and the rebate makes this consumption tax progressive. The IRS would be abolished as the states will collect the sales tax and keep a 0.25% collection fee. Retailers would also keep a 0.25% collection fee. There will be no more 1040s, no more withholding, no more distinguishing between gross and net pay and no more using the tax code to hide subsidies and penalties. Households will annually report who lives in the home, their birthdates and social security numbers. Savings could function as unrestricted IRAs as income and gains would not be taxed.
Congress recently tweaked the current income tax system and left the payroll taxes alone. It is not reform at all. It will raise the deficit. The Fair Tax would lower it. The United States has fallen to Number 17 in the Index of Economic Freedom. The United Arab Emirates has risen to Number 8, and they do not have an income tax. They have oil and we have consumption. The United States can return to world economic leadership and the Fair Tax will go a long way toward that goal.
By Jim Stehr
Retired teacher and Fair Tax volunteer with a Masters in Economics
Fair Tax essay 2
Let’s bring jobs and businesses to the U.S.A.
Picture this scene; you, representing the Office of the United States Trade Representative are making a presentation to a group of International Corporate leaders. Your goal is to convince them to invest in doing more business in the U.S.A. The room is full of top management, board members, high government officials and the press. Cameras and microphones are on.
After greeting the audience, you say the following:
“Thank you for this opportunity. The United States welcomes you and your companies to come to our country to invest, create jobs, make a profit, employ our skilled work force and enjoy our freedoms. And, as you know, businesses in the United States pay no federal income tax, no capital gains tax and no payroll taxes. Here your business will not be burdened with the extra manpower, time and expense taken to understand and comply with a complex tax code.
You see, in the U.S.A. we recognize our standard of living depends upon on our work and creativity, so it makes no sense to tax and punish the elements of production; income, savings and investment. We also recognize that all business taxes are expenses that are passed on as higher prices to finally be paid by the final consumer. We have changed our federal tax code to eliminate business taxes and taken them out of the pricing system. Therefore, you will have lower management costs and expenses to enable you to lower your prices and to be more competitive in the World markets.
However, if you have a retail business selling new goods and/or services you will be required to collect a consumption tax of $.23 per dollar of sales in the U.S.A. For this tax collection you will be paid 0.25% (example $.25 per $100 of tax collected). As you know, U.S.A. citizens are free of direct taxation.”
If you can imagine the scene depicted above, imagine further the kind of applause with which your words would be met.
At present all the other major economies have similar tax codes which negatively impact income, savings and investments. This presentation is a call to action. Let’s move the U.S.A. tax base from income, savings and investments to a tax based on consumption with a progressive sales tax system called the FAIRTax®. The Fair Tax is progressive because it provides for an equal monthly Prebate to all legal residents to un-tax retail spending up to the poverty level.
Let’s become a true World Leader bringing financial freedoms and economic growth to our people.
Interested? Let’s meet to talk more about real/true tax reform; eliminating the IRS, stopping direct taxation on jobs and income and repealing the 16th Amendment. Learn more, join the grassroots cause, and contribute at www.fairtax.org and https://bigsolution.org/ .
Paul Livingston
Business Consultant and volunteer N.E. Florida District Director for the FAIRTax
[email protected] , 904-735-7565
The Fair Tax could use a new name, maybe the Best Tax, or the Workers`Liberation Tax.
Or the Smart Tax.
WinLoseorDraw would like one of the following:
The Future Tax (since it will inevitably be adopted in the future)
The Right Tax (not because the vast majority of supporters identify with the right side of the spectrum, but because it is the right thing to do)
or
The EZ Tax (for obvious reasons)
Pres Trump calls for fair-trade with other nations, so let’s call for fair-taxation of our (US) citizens. I think the name is perfect for what it is/what it does.
First: eliminates the 16th Amendment & its attack dog, IRS!
IRS is an entity that abuses nearly ALL the Bill of Rights; presumes guilt (at audit, which is called arbitrarily); is empowered to seize business & personal property (including homes)…so, it is not just about financial freedom, but basic civil rights!
When is Phase 3?
A GOP event featured Grover Norquist, president of Americans for Tax Reform, who said, and his website also states, “ATR works to limit the size and cost of government and opposes higher taxes at the federal, state, and local levels and supports tax reform that moves towards taxing consumed income one time at one rate.” Italics are mine. We can get there in one jump by enacting HR 25, S 18, the Fair Tax but that does not appear politically viable at this time for some reason, maybe the jump seems too big for the political class members who agree with this goal that would improve the lives of millions.
In December 2017 Congress passed and Trump signed temporary decreased income tax rates, with changes in exemptions and deductions. All the Democrats voted against it. This year Phase 2, if it passes, would make the changes “permanent” plus it provides another opportunity to allow Democrats to vote against citizens keeping more of their own money. This is an election year, so I would guess after that, there is no Phase 3. But it should be the Fair Tax and it can happen in 2018.
Here is an analogy. There was a political plan, done in phases, to put men on the moon. Phase 1 was Project Mercury that launched one astronaut at a time, 1961-1963. Phase 2 was Project Gemini which launched two astronauts per ship into low Earth orbit, 1965-1966. They did not stop there. Phase 3 was the Apollo Program with super rockets 1967-1972 which landed 2 men on the moon 6 times and brought them back with samples. Goals were met.
Phase 3 is important now to complete tax reform. Phase 1 was the temporary changes, making our tax system “less stupid,” Mr. Norquist’s term. Phase 2 will make the lessening of stupidity “permanent.” We want Phase 3, super tax reform that gets us all the way to ‘taxing consumed income one time at one rate.” Yes, and the best way to do that is to tax directly that which is consumed and abolish all taxes on incomes and payrolls. That’s the Fair Tax. It will be a smart system.
“Permanent” is in quotes because the 2017 tax cuts are set to expire in 8 years, just as the 2001 and 2003 income tax cuts expired. A future Congress and president can raise taxes anytime. Why doesn’t spending expire?
Spending is the government’s Tesla motor car. Let’s pump the brakes and carefully move over to the slow lane. How bad could it be?
The two essays focus only on the economic effects of genuine tax reform but they ignore the political aspects. According to Paul Johnson’s book Intellectuals: From Marx and Tolstoy to Sartre and Chomsky, Marx’s “analysis” was completely fraudulent. For example, he claimed that industrial workers were becoming worse off when the government studies that he cited showed the opposite. Marx, Engels and their many followers use big lies to grab power. The Communist Manifesto was a ten-point plan for taking over a country and one of them is a “steeply progressive income tax.” The self-called “progressives” in the 1910s were very much influenced by communist passions and lies which continue today with increasing government control of the economy, most recently a great leap forward in the dictatorship of health insurance. The recent Republican tax cut plan reduced the corporate rate which by itself will increase capital stocks, but the marginal personal income tax rates still top out at 37% which does not favor capital, and the cutting of lower rates increases the “progressivity” of the redistributionist tax and subsidy system. Republicans and Democrats uphold and defend Marxist taxation.
If enacted as stated above, the Fair Tax will be a big transfer of political power from the federal government to individual tax payers. The proposal has been in Congress since 1999 and has never gone to the floor for a vote. If it is as sensible as it appears and as the research shows, why has it not been enacted during its 19-year existence? All 51 co-sponsors of the Fair Tax bill are Republicans. Why are there no Democrats co-sponsoring this bill? The political class is all about power and they don’t want to give up any, so they tell themselves and us stories about what is good or bad for us. This does not mean that enactment is impossible. If the East German citizens can tear down the Berlin Wall, then I think we can tear down the federal tax code.
“Fair” my @$$! Progressives have learned from history to resist the reactionary forces. What we need is 100% tax on all forms of income and wealth minus a rebate to each according to his Political Usefulness Social Score.
Let’s put it to a test. We will enjoy the FAIRtax, while Mr Stompksy will be the only person in America to ‘enjoy’ his plan (as stated here). After 1 year (maybe 2 or so, because Stompksy seems a little slow).