Chairman’s Report – May 13, 2016

The Elephant In The Room
 
Many of us have explained to a politician about how the FAIRtax will replace the corporate and personal income tax, the payroll tax, the Medicare tax, the estate tax and the gift tax.  Instead of being happy that most of the federal taxes will now be visible to everyone, some politicians actually work to disguise their apparent discomfort.
 
Only one time did I have a politician actually tell me why they looked like they were chewing on a lemon.  He looked at me and confirmed that all of these federal taxes would be visible to everyone and said, “We can't do that.  There would be a rebellion.”
 
What Is A Hidden Tax?
 
A hidden tax normally describes a tax that is not visible to the taxpayers.   Most taxes that we pay are not hidden.  For example, if we are employees we receive a W2 form.  The W2 form shows the amounts withheld for:
 

• Federal income tax
• Social Security tax
• Medicare tax 

There are a number of other federal taxes that are disclosed but are often” buried” in the total amount of the bill.  Here are some:
 

• Gasoline tax
• Telephone and utilities taxes
• Gas guzzler tax
• Tobacco tax
• Alcohol tax
• Air travel and airport taxes
• Gift tax
• Estate tax
• Kiddie tax (under 18 unearned income taxed at parent’s rate)
• Firearms tax
• Medical Device tax
• Truck, trailer and heavy vehicle tax 

And there are other taxes that are actually hidden from most of us.  Some of these are:
 

• Employer’s Medicare tax to match employee’s contribution
• Employer’s Social Security tax to match employee’s contribution
• Federal unemployment tax
• Corporate income tax 

Who Pays These Hidden Taxes?
 
How do employers/businesses pay the (“hidden”) federal taxes?  They actually only have three options—raise prices, pay from money that would have gone to the owners or reduce payroll costs.
 
Raise Prices?
 
Increasing the price of the goods or services they provide is probably the first choice—if they can.  This gives them more revenue and doesn’t reduce owner’s profits or force either cuts in employee pay or reduction of the number of employees.  The amount that prices are increased varies widely but certainly there is an increase in prices.  However, most businesses are competing with other companies and are not able to increase prices enough to cover these tax costs.
 
Cut Employee Wages or Lay-off Employees?
 
The second option is to either reduce employee wages or lay-off employees.  Because no one likes to see their pay reduced, this generally takes the form of delayed pay increases.  If the employees are trained and have skills that are easy to market, and pay raises are stopped, these employees will often leave for another job.  Another problem is that many employers/businesses are already operating with the least number of employees and reducing this number is not realistic.  Finally, most employers/businesses find that it costs them high amounts to obtain and train employees who are not only able to perform their jobs well but who are also reliable. 
 
It is not that these employers/businesses  can’t find new employees who will work for less, it is that the costs of obtaining and retaining these new employees is often more than the costs needed to retain their present employees.
 
Cut Distributions of Owner’s Profits?
 
This is normally the last option considered by employers/businesses because it directly reduces the amount of income received by the owners.  Also, if the profits reduce steadily and there is no other way to obtain the money to pay these “hidden” taxes, the owners may decide that it is better to close the business and move on to something else.  Obviously, this takes a competitor out of the marketplace, eliminates jobs and often eliminates most of the value the owners had in the business because it is normally seen as a sale of a business in trouble.
 
Conclusion
 
The tax and spend crowd likes hidden taxes because no one knows who pays them.  Is it that prices are higher?  Yes, by some amount.  Is it because employees make less, yes by some amount.  Is it because owners receive less, yes in some amount. 
 
These taxers and spenders like the fact that no one really can identify who pays these hidden taxes.  They like the fact that most people just accept that their wages are reduced and that their utilities and gasoline cost more.  This means that it is easier to slowly raise taxes and no one really objects.
 
There was the story of the man who was being sentenced for stealing a ham.  The man was a drunkard and had a history of being abusive to his wife, so the judge was surprised to see the wife show up and ask for leniency and for her husband to be released.  The judge said to the wife, “He is abusive to you.  Why are you asking me to send him home?”  The wife replied, “We need another ham.”
 
Many Members of Congress are actually embarrassed by a tax system that seeks to disguise the ways that the federal government is taking money from its citizens.  When they discuss this situation with their colleagues, many of them point out that the people are unhappy with Congress now and if they really saw what was being taken in federal taxes, there would be a taxpayer revolt and all of them would likely get thrown out of office.  Besides, the government has this great deficit and people are demanding more goodies.  Like the wife in the story, they know how bad and corrupt the present federal tax system is but they need another ham.
 
America’s Big Solution
 
How many times have we heard politicians say that they want to “fix” our current broken income tax/payroll tax system and then explain that they want to make it fairer and simpler.  Of course, this is DC speak for, “We will act like we are doing something but really we are not going to make any real changes—just cosmetic ones.
 
We have a 20th century tax system when we need a 21st century tax system.  That is why we created BigSolution.org.   America does need a big solution and the FAIRtax is the big solution!   Please send your friends to FAIRtax.org and Bigsolution.org. 
 
1040 Club and Contributions
 
Many people ask, “Why are you asking people to join the the 1040 Club?  Are you not a volunteer organization?”
 
Yes, AFFT is a volunteer organization.  However, in order to operate in all 50 states, AFFT needs to comply with the licensing requirements of each of the states.  We need to have a certified audit each year.  We need to maintain the website and to have an email service.  We need to maintain the database of our supporters. 
 
 AFFT is asking people to contribute $10.40 per month to AFFT. This provides a steady funding platform and allows us to spend our time not trying to raise money but actually working with groups to help make passage of the FAIRtax a reality. Thanks to each of you who have joined the 1040 Club.  You are ensuring that Americans For Fair Taxation can continue to promote the FAIRtax.
 
If you are not a member of the 1040 Club, or if you are a member but want to join for someone else, please go to this link and sign up.
 
If you don’t want to have a monthly donation, please go to FAIRtax.org and donate a single amount.  We have our best chance now and need your help.  Many of us prefer to make one donation as opposed to monthly donations and this greatly helps.
 
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.
 
To listen to FTPR on SoundCloud (free and audio only) go to these links:
 
FTPR Program 29 on SoundCloud: http://bit.ly/1ZGihQp
 
FTPR Program 30 on SoundCloud: http://bit.ly/1RwsPfF
 
FTPR Program 29 on YouTube: http://bit.ly/1PAAKXb
 
FTPR Program 30 on YouTube: http://bit.ly/1Rnxrbi

To listen to FTPR on SoundCloud (free and audio only) go to these links:
 
FTPR Program 29 on SoundCloud: http://bit.ly/1ZGihQp
 
FTPR Program 30 on SoundCloud: http://bit.ly/1RwsPfF
 
FTPR Program 29 on YouTube: http://bit.ly/1PAAKXb
 
FTPR Program 30 on YouTube: http://bit.ly/1Rnxrbi
 
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