The FairTax
I have been wanting to write up an articulate piece of persuasion about why the FairTax would be the greatest thing to happen to our beloved U.S. of A. You haven't seen it yet, because I've been waiting for a co-worker to read and return my copy of The FairTax Book so I can have a reference for specific statistics that are given and the excellent Question and Answer chapter near the end that dispels many criticisms lobbied against the proposal. I have a feeling that isn't going to happen any time soon and two people are in line to borrow it next, so I'm going to wing this. Bear with me.
I'd like to begin with a very brief nutshell overview that we can follow up with more detail regarding anything you want to discuss or for which you would like more clarification.
Here we go...
The 30 Second Pitch in Bite-Size Pieces:
Below are the fundamental aspects of the FairTax and surrounding issues that one must understand.
1) The FairTax replaces all other federal taxes with one consumption tax. No income tax. No Medicaire tax. No Social Security tax. Nothing. Only a consumption tax.
2) The FairTax will make it so that goods and services that you consume will only be taxed one time. Everything that you buy now includes embedded taxes. You paid sales tax on the monitor that you're using to read this. The Best Buy where you bought it paid tax when they bought it wholesale from the monitor depot. Both pay tax for their building, employees, and supplies. The shipper that transported the monitor to Best Buy pays tax on his truck, gasoline, and maintenance. The monitor manufacturer paid tax on the plastics and LCDs used during production. Etc, etc, etc. All of those taxes for the same product go away and are replaced by a one-time consumption FairTax.
3) Products will cost almost exactly the same with the FairTax as they do now. As producers will not have all of those embedded taxes to pass on to you, the market will lower the cost of products the amount of those embedded taxes (estimated to be 22%) and replace them with the FairTax (about 23%), keeping costs nearly identical.
4) The FairTax is revenue neutral. While the authors of the FairTax proposal and many politicians realize that federal spending is out of control, the FairTax does absolutely nothing to address this issue. The 23% figure was decided upon because it will generate the exact same amount of tax revenue that the federal government currently collects. Federal programs aren't going to receive one penny less.
5) The FairTax helps the "poor" and the "middle class". Many critics incorrectly say that "the poor can't afford a 23% sales tax." Obviously, they know nothing about the FairTax or are purposely trying to obfuscate the truth. Remember that everything a poor person buys will cost nearly the same as it does now. Now remember that the poor person doesn't have to pay any income or other federal tax. Every cent of their pay check is theirs in that regard. Now, on top of that, the FairTax plan calls for every American to receive a monthly prebate check that reimburses them for the tax that will be paid for their basic necessities - food, shelter, clothing, etc. This prebate check is determined by the federal poverty line for their situation. I don't recall the numbers, so let's just say that the poverty line for a single person is an annual income less than $15,000. That single person will receive a monthly prebate check for the FairTax that he would be paying for anything in that first $15,000. That means that he gets a check in the mail every month for:
23% x ($15,000 / 12 months) = $287.50
Let's say the poverty line for a family with four kids is $35,000. That means the family receives a monthly FairTax prebate check for:
23% x ($35,000 / 12 months) = $670.83
Let's add that up.
Items cost the same + keep all of your paycheck + receive a check in the mail = good for poor people.
6) The FairTax is not a partisan nor political proposition. It was not created by politicians. It was created by hundreds of the top economists and academicians after being asked, "If you could change America's tax code, what would you do?"
Why Do We Need the FairTax?
Good question.
1) It will attract hundreds of billions of dollars in new business to the U.S. It will solve our outsourcing woes. America will become the tax haven for the entire world. Instead of American companies moving to Mexico, corporations from around the globe will flock to our shores to set up shop here. Imagine the growth in the economy. Imagine the influx of new jobs and technologies. Studies have shown that the most deciding factor businesses currently consider when determining a strategy is not, "Will this make us the most profit?" It is not, "Is this a good product that will benefit mankind?" The most influential question to them is, "What will this do to our tax bracket?"
2) It will save Social Security and other failing government programs. Yes, you heard that right. It will save Social Security, will drive down our national debt, and it will fix what ails Washington. (Again, please excuse the following recollected numbers. I need to get my book back.) Expert economists estimate that there is somewhere in the neighborhood of $100 Billion dollars of taxes that should be collected from legal ventures that aren't due to outright criminal negligence or hiding behind complex loopholes inherent in our 60,000 pages of tax code that don't mean what they say. After the FairTax is passed, the rich will still buy mansions and yachts. Tax will be collected off of that like never before.
Also, expert economists take a complete stab in the air and estimate that America has something like a $400 Billion illegal black market. Obviously, it's tough to estimate that, but that's what they came up with. Drugs, prostitutes, illegal gun sales, mafia dealings... We know that Joe Gangbanger doesn't report his income and pay taxes when he sells crack. However, when he buys spinning rims for his Escalade or gold teeth for his grill, he is paying tax into the system for the very first time! All of this additional revenue will increase tax collections in ways that are unimaginable.
3) It abolishes the IRS and tax lobbyists. I'm not citing this to be vindictive. I can only imagine that tax collection and related legal services are a difficult and necessary profession at this time. I'm citing it because they are an enormous drain on our economy. (Again with numbers that I am trying to recollect), experts estimate that America pays three times as much to collect taxes than it receives in tax revenue! Talk about inefficiency! On a personal level, I think I'm a pretty smart guy and certainly don't have complex tax considerations. I'm not day-trading hundreds of stocks and am not running four corporations. Anyway, it's inexcusable that I have to pay someone to do my measly taxes every year. The FairTax commission hired ten different accountants to do taxes on an average representative American business. No two tax returns were alike! On top of that, they gave those returns to various IRS officials, and they could not agree which one was correct!
I'll just briefly say that tax lobbyists are the scourge of our political reality. That's how the majority of dealings get done in DC. The tax code is changed hundreds and hundreds of times on a regular basis depending on a lobbyist's dealings for his clients. Terrible.
What Are Critics Saying About the FairTax?
1) It hurts poor people. When you hear this, you know that the speaker knows nothing about the FairTax or is purposely lying to you. This is covered above.
2) Products will not lower in price and things will cost 23% more than they do now. The fact is that no one knowledgeable is worried about this. I know that sometimes people don't trust the free market to continue to do what it has always done: follow the laws of economics (not theories of economics). However, it's OK if some Americans want proof. The book cites several instances where tax burdens were lifted and prices dropped. For instance (and very recently), the federal government lifted taxes for airlines after they were hurt from the attack on 9/11 and no one was flying. For a couple of weeks, airline ticket prices remained the same and companies were collecting profits from that. Then, a smaller airline realized that they could undercut their larger competitors and lowered their prices. This gave them an advantage and all other airlines followed suit until everything leveled off so that the airlines were receiving the same profit that they were before (which is what the market would allow), plane tickets were lower, and more people started flying again due to it. This really does work, folks.
3) Politicians will increase the FairTax. It's very true that we run the risk of DC deciding at a later date to raise the FairTax to something higher than 23%. All I have to say to that is: "Do you think politicians aren't changing the tax code now?" Thousands of pages are added and deleted all the time so that nobody knows what is going on, let alone ordinary citizens having a clue. Everything is currently hidden from the public eye and there's not much we can do about it. However, if the feds only have one tax that they can change, we'll instantly hear about an increase from 23% to 28% and say, "Hey, what's going on? Why do you need more money? What are you spending it on now?" That's a favorable result in my book. Politicians will only want to alter it when absolutely necessary due to the visibility of it. That in itself will favor the status quo and keep the FairTax at a consistent value.
4) I will lose my mortgage interest tax deduction (or similar). These types of excuses are my absolute favorite and pop up all the time. It shows that too many people don't even have the most basic understanding of taxes. Answer: YOU'RE NOT PAYING INCOME TAXES FROM WHICH YOU CAN DEDUCT! Yes, smart guy, you're losing your mortgage deduction, that lets you skim a little bit off of the thousands and thousands of dollars you pay in tax every year. How about this alternative: Don't pay any of that tax in the first place!
5) This will never happen. The FairTax has been introduced in Congress each of the past eight years. It continually receives more and more support from the public and co-sponsors in Washington. It definitely will not happen from the efforts of most politicians. They want to keep it silent because they like having tax loopholes to appease business interests in their district and have trading chips for other politician's support on unrelated legislation. However, word is starting to get out to the American public and the more people that contact their Reps and tell them that they want the FairTax, the more headway we're going to see. For the first time, a Presidential candidate (Huckabee) spoke about the FairTax during his precious time in a debate. It's getting there and it's only growing stronger.
----------------------------------------------------------------
So, what did I screw up explaining? What do you want to discuss? What don't you like about the FairTax?
Be sure and visit FairTax.org for more detailed information. In fact, they probably answer many of my recollections that could be off, but I'm too lazy to go dig for them.
This article is permanently linked here.
6 comments
