Chairman’s Report – April 29, 2016

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  • Source: FAIRtax
  • 04/09/2021
What Is A Border Adjustable Tax?
A nation’s tax that is border adjustable is one that taxes imports and domestic goods the same way but does not tax the nation’s exports.  This is a subsidy from the nation to make its exports more competitive.
General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)
After World War II there was an agreement between 23 of the countries with the largest economies on a more sensible way to handle international trade.  At that time, tariffs varied from country to country and product to product and there were other barriers to international trade.

In 1947, the countries agreed on the General Agreement on Tariffs and Trade (GATT). The GATT treaty created a set of rules to govern trade among those nations that reduced the use of tariffs.  In 1995, GATT became part of the World Trade Organization (WTO) which now has 156 members who account for approximately 97% of the world’s trade.

Direct and Indirect Taxes
One of the provisions of GATT and now the WTO is the ability of the countries to subsidize their exports and tax imports based on their tax policy.  The members have agreed to treat direct taxes like payroll taxes and personal and corporate income taxes differently from indirect taxes like retail sales taxes and value added taxes.
Under the GATT/WTO rules, member countries are allowed to refund the indirect taxes to exporters while taxing imported goods the same as domestically produced goods.  This means that an indirect tax is border adjustable while a direct tax is not border adjustable—meaning that indirect taxes can be rebated to an exporter.
Payroll/Income Tax Compared to the FAIRtax
Because the payroll/income tax is a direct tax, it is not border adjustable, but the FAIRtax is an indirect tax and is border adjustable.  The FAIRtax is probably the clearest form of an indirect tax for trade purposes because it only taxes retail sales of goods and services in the U.S. 
How Does A Border Adjustable Tax Affect An Economy?
To answer this question, let’s compare a bottle of wine produced and exported from the U.S. and a bottle of wine made and exported from France that has a retail selling price of $20 in U.S. dollars.  (Obviously, the wine from both countries will generally not go directly to a retailer but through a wholesaler but the principles are the same.)  While France has income taxes, they also have a value added tax of 20%--an indirect tax. 

What Would Be The Difference After The FAIRtax?
It is hard to establish how much passage of the FAIRtax will reduce the prices of U.S. goods and services.  However, it is generally agreed that the prices of U.S. products will likely be reduced by at least 10%.  We are assuming that the $20.00 retail price of the U.S. wine is now $18.00. 

While we have assumed that income taxes, payroll taxes and the cost of compliance only increase the prices of U.S. goods and services by 10%, the real price increases attributable to our antiquated system are likely higher.  By looking at the benefits to U.S. companies of having a tax system that is border adjustable, it is obvious that this is one of the major reasons why jobs are not staying in the U.S.  
It is also significant that of our main trading partners that are part of the Organization for Economic Co-Operation and Development (OECD), the U.S. is the only one that does not have an indirect tax that can be rebated to make their exports more competitive.
Our payroll/income tax system actually subsidizes imports and penalizes U.S. exports.  In the increasingly global economy, it is time that the U.S. adopts a form of taxation that places our U.S. companies on equal footing with international competitors.  It is time to have a tax system that encourages jobs.
As Deputy Secretary of the Treasury Kenneth W. Dam in his testimony to the Senate Finance Committee in 2002 said, The bottom line is clear and simple. Our economy is truly global. U.S.-based companies must be able to compete in today’s global marketplace. Our system of international tax rules should not disadvantage them in that competition. If we allow our international tax rules to act as an impediment to successful competition, the cost will be measured in lost opportunities and lost jobs here at home.
The FAIRtax is the solution not only to this problem but to all of the other problems of the payroll/income tax system.
America’s Big Solution
One of the things that is upsetting to most of us is that our leaders in D.C. act like the solution to our problems is more of the same.  They are ignoring Albert Einstein’s definition of insanity, Doing the same thing over and over again and expecting different results.

We have a 20th century tax system when we need a 21st century tax system.  That is why we created   America does need a big solution and the FAIRtax is the big solution!   Please send your friends to and
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FAIRtax Power Radio
There are many ways in which people can help us educate more Americans about the FAIRtax.  In Programs 29 & 30, the FAIRtax Guys describe how listeners can support and promote our efforts. Program 29 concentrates on simple but effective things for people with busy schedules, whereas Program 30 suggests some activities that might take a little more time.  The programs are free to the listeners.  Please share these links with your friends and relatives.
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