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