THE FAIRTAX IS A WEALTH TAX
Elizabeth Warren is announcing her proposal for a tax on wealth to raise more money for the U.S. Treasury. These new funds will go to the additional federal spending she is proposing. In addition to possibly raising rates on higher income taxpayers, Senator Warren is seeking to impose a 2% tax on the assets of an individual starting at $50 million in assets and then going to 3% on the value of assets over $1 billion—a wealth tax.
According to an article at TheWeek.com, some economists estimate that the tax would raise $2.75 trillion over a decade from roughly 75,000 households.
What Senator Warren is addressing is one of the biggest problems with the income tax/payroll tax system—the wealthy can legally arrange their affairs to minimize their effective tax rate and many times have an effective tax rate lower than the tax rate of a middle-class family paying 7.65% FICA tax and a 15% federal income tax rate. To Senator Warren, this is very unfair and a large majority of Americans apparently believe that the wealthy should pay more.
However, as Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office said in a recent email of his “The Daily Dish” email newsletter:
- The super-rich don’t typically have all their money in a few bank accounts that are easy to tally. They own myriad assets, many illiquid, with valuations that can vary wildly.
- Setting up an entirely new tax is a hefty undertaking. This tax, in particular, appears to be difficult to set up and administer and costly to comply with. It also requires accurate valuation of wealth each year. That might be easy enough for broadly traded assets like stocks, but how much is your Renoir worth this year?
- It is arguably illegal because it is a constitutionally prohibited direct tax and direct taxes must be apportioned among the states on the basis of population. The wealth tax would be apportioned based on, well, wealth. (The income tax became legal only through the passage of the 16th Amendment.)
- While the tax is aimed at a relative handful of Americans, everyone would have to comply by assigning a value to their assets and file if only to prove they have no liability.
ENFORCEMENT PROBLEMS
The wealth tax is another example of out-of-touch bureaucrats who assume that because the numbers work on paper, they will work in real-life. They assume that all of the wealthy will annually pay for an evaluation of their assets. While this would be a boon for companies that do independent appraisals, the bureaucrats assume that these appraisals will show accurate values.
The facts are likely to be very different. People who have wealth may decide to do estate planning activities which will legally greatly reduce the assets that they own. For many of the wealthy, owning the assets is not as important as being able to make use of the assets.
No one really cares who owns the private airplane if they can use it any time they want. Similarly, if our employer sends us to a hotel that costs more than we would normally pay, we accept the upgrade and enjoy the hotel.
All of us can relate to this example. In most jurisdictions, our homes are valued for property tax purposes. It is normally not based on the highest price for which it can be sold but on a lower price. If you think the property tax value is too high, then you can appeal it, but because of the way the property appraisals are done it is usually acceptable.
However, if you have a home that is valued at $200,000 for property tax purposes but similar homes down the street are selling for $250,000, what value do you put on the loan application for a personal loan? When people are disputing the value of an asset, you often see “professional” appraisals that vary wildly. The party having to buy the interest of the other has a great interest in a lower appraisal and the party seeking to be bought out wants a higher appraisal.
And what is an appraisal? It is a best guess. The value depends on lots of assumptions that each can materially affect the value if the property were sold. In addition, what about the person whose “wealth” comes from privately-traded stock of a company developed by the person and his/her family? The stock pays no dividends but in theory might be worth $60 million if sold, or it might be worth $30 million if a few contracts are not renewed in the following year. Is the value $60 million or is it $30 million or somewhere in between?
In my own mediation work, I have seen company appraisals done by reputable companies, who are prepared to defend their appraisal in court, that vary by large amounts. Recently an appraiser representing a selling party determined that the private company value was $5.2 million and the appraiser representing the buyer determined that the value was $1.5 million. It is likely that these types of differences will be repeated if the IRS assigns one value and the taxpayer another.
The wealth tax just imposes another layer of bureaucracy because someone is going to have to inspect these “valuations” submitted by individuals subject to the tax. Unlike most of us, the very wealthy can afford to dispute a decision by an IRS auditor who says that the value reported is too low.Almost certainly, this will require more and more bureaucrats.
THE FAIRTAX AS A WEALTH TAX
During the time I practiced tax law (I am now a recovering tax attorney), I saw numerous examples of how the very wealthy owned and controlled many things like boats and planes without legally owing income/payroll tax. For example, if a very wealthy person wants to own a $500,000 new yacht, they could go to their bank, deposit $500,000 with the bank and then receive a loan for $500,000. They use the loan to purchase the yacht.
They normally paid less than one percent more on the $500,000 loan than they received in interest on their $500,000 bank deposit. Then they had the use of the $500,000 yacht for as long as they wanted, and it cost them about $5,000 per year in interest costs. They did not “earn” any income, so they were not subject to the income tax or the payroll tax.
Is this just a “gimmick” for the wealthy? No, how many of us have wanted to buy something and we took out a home equity loan on our residence, used the funds to purchase the cabin or boat or whatever, and then simply paid the interest on the loan?
Contrast this situation with how the purchase of the $500,000 new yacht would be treated under the FAIRtax. The purchaser, whether he or she used earnings or borrowed funds or even inherited funds, would pay the 23% sales tax at the time of purchase.
You would not need an army of IRS agents and countless battles in court. It would be simple and direct. The tax would not be disputed because the purchase price is the purchase price and the tax is a flat rate based on this price.
Of course, if the yacht was used and not new, it would not be subject to the FAIRtax. However, the wealthy often purchase new yachts and they can afford to pay the FAIRtax. The point is that they share the same rights as everyone else, and they can directly control the amount of FAIRtax they pay by how much they purchase and if the product is new or used.
Before the 1986 Tax Reform Act, I met with Senator Bob Packwood who was then Chairman of the Senate Finance Committee. He told me a story. He said that all of the Members were working hard and one night he decided to add some humor. He called in some of the Finance Committee staff and asked for them to tell the committee how much additional money would be raised if the income tax rate was increased to 100% for incomes over $250,000—as I recall. He said the next day he was surprised that the staffers not only didn’t believe it was a joke, but very seriously presented him with projections of how much more money would be raised with the new tax.
The Senator at first thought they were playing a joke on him and then realized that they were serious. Not one of them ever considered that most people would not continue working when they made more than $250,000 because there was no incentive. Instead of raising far more, the income to the treasury would go down significantly.
Except in Washington, D.C., the idea of creating a program that would greatly expand the bureaucracy and create a program guaranteed to not work as “projected” would be dropped as ridiculous. However, to the bureaucrats like Senator Warren, there is a benefit to expanding government employees and government control over the wealthy. Now the wealthy don’t feel any obligation to be nice to Senators like Senator Warren. This will teach them a lesson even though it will likely raise much less than projected and be fraught with problems.
As Oscar Wilde said, “The bureaucracy is expanding to meet the needs of the expanding bureaucracy.” Many bureaucrats believe that they are working too hard. Some are but by the standards of non-government employers, most aren’t. However, since government employees are generally not judged by competency but by the length of time they have been employed, hiring more bureaucrats becomes job security for existing government workers because the newly hired employees would be the first to be let go if the unheard of happens—the cutting back of government employees.
Isn’t it time to take back control from D.C.?
President Trump, “Embrace the FAIRtax and real tax reform! What have you got to lose?”
It is time to PASS THE FAIRTAX!
The truth is the truth. Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:
“If you want a picture of the future, imagine a boot stamping on a human face—forever.”
WHAT CAN EACH OF US DO
- I am sure that Representative ____ or Senator ____ is in favor of everyone obeying the income tax laws.
- After they assure you that their boss is not in favor of anyone breaking the law, ask if they are aware of the Cebula study showing $9 trillion of evaded income/payroll taxes over the next ten years.
- Since most will say they don’t believe their boss has seen the study, either drop off a copy or get an email address and send a copy to them for their boss.
- Say you are going to call back in a week and ask what the Representative or Senator is going to do to stop this evasion.
- In a week, call back and ask specifically what the Representative or Senator is going to do to enforce the law.
- They probably will say their boss believes that simplifying the income tax will handle the problem.
- Explain that when people evade income taxes, they are also evading the 15.3% payroll/Medicare tax and state income tax. So it is unlikely that they are going to pay 30% or 40% when they were paying 0% because they have already decided it is okay to cheat.
- Say that the only way to reduce evasion is to increase by tens or hundreds of thousands the number of comprehensive IRS audits done each year.
- Point out that Evaders do not self-identify by putting an “E” on their income tax return.
- 80% of the people likely to be audited are trying to comply, but they will be forced to endure these IRS audits as well.
- Ask if the Member is in favor of this?
- If they say no, then ask again how the Member proposes to stop people breaking the income tax laws.
- Then explain that the way to handle evasion without unleashing the IRS audits is the FAIRtax.
If you can see your Member or attend a town hall and ask these questions, you can be even more effective.
FAIRTAX POWER RADIO
#145 FAIRtax Proponent vs. FAIRtax Denier - The Battle!
The FAIRtax Guys role play polar tax opposites as a means of comparing, point by point, the current income tax to the FAIRtax. Lines are drawn. The battle is joined! It is not a pretty sight. But only one system can be victorious.
Which system is more user friendly? Which system works within the framework of the Bill of Rights? Which system eliminates the universally despised IRS? Which system is works best for all Americans?
Care to guess which system comes out on top?
If you believe the FAIRtax is good for America, let others know by turning them onto FAIRtax Power Radio - the ONLY weekly FAIRtax digital TV show in the country! Watch every Wednesday at 11:30 AM (ET). We are streaming to Facebook LIVE (www.facebook.com/fairtax). If you’re not a fan of Facebook, you can watch the show on www.xcluded.tv at the same broadcast time - or any time.
FTPR podcasts for each show are posted on Spreaker (http://bit.ly/2oesbk7), iTunes & iHeart Radio every Friday morning. A free FAIRtax Power Radio app is available for iOS and Android. Since it’s a podcast, you can download it and play it whenever it’s convenient for you.
The FTPR weekly episodes are shared to a number of Facebook pages:
- FAIRtax Official (https://www.facebook.com/FairTax/)
- The FAIRtax Guys (https://www.facebook.com/thefairtaxguys/)
- Democrats for FAIRtax (https://www.facebook.com/DemocratsForFairTax/)
- and many others
www.xcluded.tv is a subscription based site which costs $30 per year and features a number of other shows along with FTPR with no commercial interruption.
Please help us educate as many Americans about the FAIRtax as possible. Be sure to tell everyone you know about this great new format for FAIRtax Power Radio. Whether you watch the weekly video or listen to the weekly podcast, this is a great way for more Americans to learn about the best tax reform plan in Congress at this time.
Tune into our video broadcast each Wednesday. Or, if you prefer, you can listen to the podcast of the show later. You can listen to FTPR on any platform - Mac or PC, iPhone or Android. And it’s 100% free. Listen on Spreaker.com (http://bit.ly/2oesbk7), iTunes (http://apple.co/1Te8VdF) or iHeart Radio (http://bit.ly/2eqEG7y) on your computer or smartphone. The easiest way to listen to FTPR on your smartphone is by downloading the free FTPR app. Just search for “FAIRtax Power Radio” in your app store, download the app and start listening.
Remember, FTPR digital TV every Wednesday at 11:30 AM (ET) followed by the podcast on Friday morning. Please listen and tell everyone you know about the FAIRtax Power Radio. The FAIRtax: Once You Understand It, You’ll Demand It!
DOES SOMEONE NEED A SIMPLE INTRO TO THE FAIRTAX?
HERE IT IS - AMERICA’S BIG SOLUTION
America’s Big Solution provides a starting point in your study of the FAIRtax and is meant for people of any age. And you can download it to your tablet or smartphone right now. It’s also available in print form. See below.
Do you know someone who would like an introduction to the FAIRtax and would prefer to read about it in a booklet rather than search online for Tweets, Posts and Shares? If so, America’s Big Solution is their best choice.
America’s Big Solution is an introduction to the FAIRtax written by Terry Tibbetts, author of A Spartan Game: The Life and Loss of Don Holleder, with help from Ron Maiellaro, President of the Florida FAIRtax Educational Association.
You can buy an electronic version of ABS as follows: AMERICA’S BIG SOLUTION is available for only $2.99 for the Amazon Kindle (http://amzn.to/1WIRHry), the Barnes & Noble Nook (http://bit.ly/1XeG8bH) and Apple iOS (http://apple.co/1tnqK0P).
You can purchase a print copy at the same Amazon link above for $9.25. Regardless of whether you choose the electronic format or the print format, you’ll find AMERICA’S BIG SOLUTION will give someone the boost they need to begin their study of the FAIRtax and the suggested resources to learn more. Buy AMERICA’S BIG SOLUTION now!
LINKS TO MORE INFORMATION
These links will help you promote and support the FAIRtax, make yourself familiar with the links below. We always do our best to keep our AFFT community up to date, and you can stay ahead of the curve using these convenient sites.
- The website of Americans for Fair Taxation (www.fairtax.org)
- Read the Summary of the Evasion Study
- Welcome to the Online FAIRtax Community (member.fairtax.org)
- The website at which you can help make it happen (bigsolution.org)
- The Facebook page for Americans for Fair Taxation
- The Facebook page for The FAIRtax Guys
- The Twitter page for Americans for Fair Taxation
- YouTube channel for AFFT
- YouTube channel for The FAIRtax Guys
- The Official FAIRtax Logo Store (www.fairtaxlogostore.org)
- www.xcluded.tv - A new platform for FAIRtax Power Radio Video and other shows
- POPVOX - Make your FAIRtax voice heard on this national self-survey platform
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