ECONOMISTS IGNORE A MAJOR FACT WHEN THEY ARGUE THAT THE FAIRTAX WILL NOT IMPROVE THE TRADE BALANCE
Over the years, I have met and often been on panels with many economists—some Nobel Prize-winning economists. Almost all these men and women were personable and treated me with reasonable deference as they dismissed my arguments about the advantages of the FAIRtax over the present income/payroll tax system.
Many economists dismiss the impact of the FAIRtax on trade by arguing that if the U.S. instituted a value added tax (VAT), goods and services tax (GST) or retail sales tax (RST) like the FAIRtax, there would not be much difference in the balance of trade. They say that both the VAT and FAIRtax would operate the same way, but because of the adjustments in currency rates, the net effect would be a very small trade benefit.
Being a “reformed” tax attorney, I have seen the complexity of the present income/payroll tax system and have dealt with tax practitioners who reside in some of our trading partners. It just didn’t make sense that eliminating the U.S. income/payroll tax system would not dramatically affect not only U.S. economic growth but also provide enormous trade benefits.
Over the past few weeks, I have reviewed a number of economic papers on the subject of a U.S. border adjustable tax not really affecting our balance of trade. In one of those moments when you slap your forehead, it became clear what was being ignored and the answer was very simple.
These economic reports are based on an assumption that border-adjustable U.S. taxes would be added to the existing income/payroll tax system. This is what has happened in Europe and the economists believe that it would be the same in the U.S. This of course is not what the FAIRtax does, it replaces the entire U.S. income/payroll tax system and explains why these economic reports seem to make no sense.
OUR TRADING PARTNERS
We first should look at our main trading partners. The chartbelow, prepared by the U.S. Census Agency, shows our trading partners and the amount of exports and imports to and from each of the top 15 trading partners who make up 75% of total trade.
|
Rank |
Country |
Exports |
Imports |
Total Trade |
Percent of Total Trade |
|
--- |
Total, All Countries |
540.1 |
804.5 |
1,344.7 |
100.0% |
|
--- |
Total, Top 15 Countries |
387.4 |
620.5 |
1,008.0 |
75.0% |
|
1 |
42.3 |
161.3 |
203.6 |
15.1% |
|
|
2 |
98.9 |
103.5 |
202.4 |
15.1% |
|
|
3 |
86.4 |
110.3 |
196.6 |
14.6% |
|
|
4 |
23.3 |
47.1 |
70.4 |
5.2% |
|
|
5 |
19.5 |
41.4 |
60.9 |
4.5% |
|
|
6 |
22.8 |
19.6 |
42.4 |
3.2% |
|
|
7 |
South Korea |
17.4 |
22.7 |
40.1 |
3.0% |
|
8 |
11.2 |
16.9 |
28.1 |
2.1% |
|
|
9 |
9.8 |
17.6 |
27.4 |
2.0% |
|
|
10 |
7.5 |
17.3 |
24.8 |
1.8% |
|
|
11 |
16.0 |
7.2 |
23.2 |
1.7% |
|
|
12 |
8.8 |
14.0 |
22.8 |
1.7% |
|
|
13 |
3.7 |
18.9 |
22.6 |
1.7% |
|
|
14 |
12.4 |
9.6 |
22.0 |
1.6% |
|
|
15 |
7.5 |
13.2 |
20.6 |
1.5% |
TAXATION RATES IN OUR TRADING PARTNERS
For example, if you look at an analysisdone by the accounting firm PWC, you will see that our major trading partners have added their VAT’s to high corporate income taxes. The personal income tax numbers were compiled by KPMG.
|
Country |
VAT/GST Rate |
Corporate Income Tax Rate |
Personal Income Top Tax Rates |
|
China |
16% |
25% |
45% |
|
Canada |
5%-15% |
26% |
33% |
|
Mexico |
16% |
30% |
35% |
|
Japan |
8% |
23.2% |
56% |
|
Germany |
19% |
15.8% |
45% |
|
United Kingdom |
20% |
19% |
45% |
|
South Korea |
10% |
22% |
40% |
|
France |
20% |
33.33% |
49% |
|
India |
18% |
25% |
35% |
|
Italy |
22% |
24% |
43% |
|
Netherlands |
21% |
25% |
52% |
|
Taiwan |
5% |
20% |
45% |
|
Ireland |
23% |
12.5% |
48% |
|
Brazil |
28-35% |
34% |
27.5% |
|
Switzerland |
7.7% |
11.5-24% |
40% |
The actual percentage of corporate tax and personal income tax paid in each country is directly influenced, as with our income/payroll system, by deductions and exemptions in each country. In addition, these numbers do not take into account additional amounts paid by each country’s taxpayers for social welfare programs.
The following averages for personal income tax rates are from the KMPG data.
European Union Average -- 38.3%
Europe Average -- 32.67%
Asia Average -- 27.65%
Organization for Economic Co-operation
and Development (OECD) Average -- 42.5%
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:THE FAIRTAX RATE AND ITS IMPACT ON TRADE AND PRICES
Again, economists ignore that the FAIRtax replaces the U.S. 21% corporate tax, 37% top personal income tax rate and 15.3% Social Security and Medicare rate with a single 23% national retail sales tax on new goods and retail services.
Economists will admit that the prices of all products are materially higher because of the taxes on labor and capital that are paid in the country making the products.
While there is no way to accurately predict the amount of reduction in retail prices when the FAIRtax is enacted, there is agreement that there will be some reduction in retail prices. No one argues that taxes of every kind increase the cost of production of retail goods and services and this increase is reflected in the final selling price to the consumer.
There are some proponents of the FAIRtax that believe that retail prices will decrease by 20%, but others believe that while this may happen in some specific areas, the average decrease in prices will be less—maybe 10% to 15%. For the following examples, we will use the more conservative number of 10%.
Effectively, this means that U.S.-produced goods will be able to be exported at a price that is at least 10% lower than now. When they reach our trading partner they will then add their VAT/GST to the lower price-- reducing the impact of the VAT/GST taxes by 10%.
The U.K. has a 20% VAT. Assume that the U.K. produces a sweater and the U.S. produces a similar sweater and the two sweaters compete in both their home countries and as exports to other countries. Also, assume that the U.S. sweater sells for $100 in the U.S. and for $100 when exported. Assume the U.K. sweater sells for $100 in the U.K. and for $100 when exported.
Under the U.K system, $20.00 would be added to the $100.00 price of the U.S. sweater when it arrived in the U.K. and it would sell in the U.K. for $120.00. After the FAIRtax, the 20% VAT would be applied to $90.00 and this would be a tax of $18.00. This would mean that the U.S. sweater price in the U.K. would be $118.00 competing against the $100 U.K. sweater.
Before the U.K sweater is exported to the U.S., the 20% VAT or $20.00 that has been collected on the sweater is refunded to the exporter. This means that the price of the U.K. product arrives in the U.S. at a price of $80.00. Under the present income/payroll tax system, the U.S. imposes no additional tax to the price of the U.K. sweater. The U.K. sweater will sell in the U.S. for $80 and compete against the $100 U.S. sweater.
Contrast this with the tax treatment of the U.K. sweater under the FAIRtax. The $80.00 U.K. sweater will be subject to the 23% FAIRtax or $18.40. This means that the U.K. sweater will sell in the U.S. not for $80.00 but $98.40 and compete against a U.S. sweater that is able to be sold for $110.70 ($90.00 for U.S. sweater and $27.00 of FAIRtax.)
Instead of being able to undercut the U.S. price by $20.00, the U.K. product is only $10.70 less expensive in the U.S. Of course, much of this $10.70 price difference will decrease if the U.S. cost of producing the sweater is reduced more than 10%--a very likely result.
For example, if the cost of the U.S. sweater was reduced by 15%, then the sweater’s price would be $85.00 and the selling price including the FAIRtax would be $104.55—a difference of only $6.15 and not $20.00.
In this example, when the $85.00 item is exported to the U.K., the VAT of 20% would only add $17.00 to the price and this would mean the item could be sold in the U.K. for $102.00. The U.K. product would be $100.00 and instead of the U.S. sweater being $20.00 higher in price, the difference would only be $2.00.
Effectively, by replacing the present income/payroll tax system with the FAIRtax, we are ensuring that U.S. products are more able to compete without any tariffs.
CONCLUSION
Ronald Reagan used to say that if Trivial Pursuit were designed by economists, it would have 100 questions and 3,000 answers.
Of course, any mathematical formula is only as good as the numbers used. If economists looked at the fact that the FAIRtax is not on top of the existing taxes but replaces them, then they would have to admit that the FAIRtax would have a dramatic effect on international trade—in our favor.
Will it totally handle our trade imbalance? No, it will not address some illegal things that some of our trading partners have done, but it will make a huge positive difference for us without imposing tariffs. For the first time, we would be treating imports in the same manner as our trading partners treat imports, and we would not be forcing our exports to carry the cost of our taxes.
In addition, as the FAIRtax allows U.S. prices to be more competitive with imported goods, the factors of shipping costs and quality become much more important. It is highly likely that more products could be made in the U.S. and compete effectively with imports under the FAIRtax. This means more jobs in the U.S.
Mr. President, you are correct that we are being abused by our trading partners. It is time that our products are taxed in the same manner as the products our trading partners.
The FAIRtax will substantially alter the trade imbalance and make a more level playing field—what you say is needed. Then if tariffs are needed for specific infractions, you can initiate limited tariffs to address those abuses. It is time to PASS THE FAIRTAX!
WHAT CAN EACH OF US DO
Call up the local or D.C. offices of your House Member and two Senators and you can use the following script:
- 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.
#112 THE FAIRTAX GUYS CONTINUE WITH “FAIRTAX 101”
From the beautiful Big Daddy Studios, pumping out both video and audio, we continue with our re-introduction of the FAIRtax using the familiar refrain “You might be a FAIRtax Fan!” to explain the primary features of the FAIRtax such as getting rid of the IRS forever, keeping the government out of your personal family business and getting a “Prebate” check at the beginning of each month. There is so much to like about the FAIRtax, it will require several episodes to highlight it all. Watch and Listen every Wednesday at 11:30 AM (ET). We are streaming to Facebook LIVE (https://www.facebook.com/FairTax/) and Spreaker (http://bit.ly/2oesbk7).
LAST WEEK’S EPISODE (#111) As we discussed previously, last week saw the beginning of an all new format for The FAIRtax Guys. Every Wednesday at 11:30 AM (ET) The FAIRtax Guys will be broadcasting from Big Daddy Studios in Gainesville, FL and streaming via the internet to Spreaker (the audio platform we have used for two years), Facebook LIVE and eventually YouTube and Xcluded.com. More on Xcluded in weeks to come.
If you miss the LIVE broadcast each Wednesday at 11:30 AM )ET), fear not. They are saved to Spreaker, iTunes, iHeart Radio and Facebook. More platforms will be added soon.
Not only will we be LIVE but eventually we will be set up to take phone calls from the public. And we will do our best to land interviews with influential people to see what they think of the only REAL tax reform plan in Congress, HR 25, The FAIRtax.
Be a part of this cutting edge news/talk show featuring The FAIRtax Guys. Stay tuned to get more details as this develops.
PLEASE HELP US SPREAD THE WORD ABOUT THE FAIRTAX!
Telling your friends and relatives about our free weekly podcasts is a great way to help us garner more support. It is the American people who must demand REAL tax reform in Congress. We must inform America about the FAIRtax! Please help us.
Telling your friends and relatives about our free weekly podcasts is a great way to help us garner more support. It is the American people who must demand REAL tax reform in Congress. We must inform America about the FAIRtax! Please help us.
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.
We post a new episode every Friday morning. Please listen and tell everyone you know about the FAIRtax Power Radio.
The FAIRtax: Once You Understand It, You’ll Demand It!
THE ELECTRONIC INTRODUCTION TO THE FAIRTAX - AMERICA’S BIG SOLUTION
America’s Big Solution is a basic introduction to the FAIRtax and is meant for people of any age. And you can download it to your tablet or smartphone right now.
Do you know someone who would like an introduction to the FAIRtax and would prefer to read about it 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. (www.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
- PopVox - Connecting people and lawmakers for more effective participation and better governing
- YouTube channel for AFFT
- The Official FAIRtax Logo Store (www.fairtaxlogostore.org)
- Xcluded.tv - The new home of FAIRtax Power Radio Video
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