Fact One: All Taxes Are Consumption Taxes
It is clear that all government taxes reduce the amount of money that a person has to spend on living expenses, family expenses and entertainment. If you make $5,000 and after deductions for taxes you receive $4,000, your ability to consume is reduced by 20%.
The difference between the types of taxes is one of timing. Income/payroll taxes are pre-taxing consumption. This means that, as in the above example, the taxes and reduction of potential consumption happens prior to your spending any money on consumption.
Sales taxes, like the FAIRtax, the value-added tax and state sales taxes, reduce the ability to consume by the amount of the taxes collected by the merchant at the time of consumption. For example, if you earned $5,000 and did not have any income/payroll taxes that reduced this amount, you would have the entire $5,000 in your bank account.
If you purchase new tires for your car for $500 and pay 20% in sales taxes, $100, you have to deduct $600 from the $5,000 leaving $4,400 available for consumption. If all of your $5,000 was spent and the applicable sales tax rate was 20%, you would have only $4,000 for consumption.
| Income Tax Example with 20% tax | $5,000 minus $1,000 withheld equals $4,000 |
| Sales Tax Example with 20% tax | $5,000 minus 20% sales tax equals $4,000 |
Fact Two: Tax Deductions Are Different From Tax Credits
Tax Deductions
A tax deduction is an expense paid by the taxpayer that Congress has decided will reduce the amount of income that is subject to the income tax. The below example illustrates the effect on a married couple earning $30,000 and another couple earning $80,000.
| Taxable Income | $30,000 | $80,000 |
| Federal Income Tax | $3,576 | $11,549 |
| Net After Income Tax | $26,424 | $68,451 |
Now let’s assume that both couples can spend $5,000 of their income and it is an allowable expense that reduces their taxable income.
| Taxable Income | $30,000 | $80,000 |
| Federal Income Tax | $5,000 | $5,000 |
| Tax Credit | $25,000 | $75,000 |
| Net Tax Owed | $2,826 | $10,326 |
| Net Income After Credit | $27,174 | $69,674 |
The tax deduction for the couple earning $30,000 increased their net income to use for consumption by $750. The tax deduction for the couple earning $80,000 increased their net income to use for consumption by $1,223. This difference is because of the higher rate of tax paid by the couple earning $80,000.
Tax Credits
A tax credit does not reduce your taxable income. A tax credit is a dollar-for-dollar reduction of the income tax you owe. Here is an illustration.
| Taxable Income | $30,000 | $80,000 |
| Federal Income Tax | $3,576 | $11,549 |
| Net After - Tax Income | $26,424 | $68,451 |
Now let’s assume that both couples are entitled to a $1,000 child tax credit.
| Taxable Income | $30,000 | $80,000 |
| Federal Income Tax | $3,576 | $11,549 |
| Tax Credit | -$1,000 | -$1,000 |
| Net Tax Owed | $2,576 | $10,549 |
| Net Income After Credit | $27,424 | $69,451 |
Each couple has an additional $1,000 to use for consumption. This is an amount paid from the U.S. Treasury and has the same budgetary effect as if Congress decided to send each family a check for $1,000.
Both tax deductions and tax credits reduce the amount of money collected by the government and have the same budgetary effect as direct allocations of these amounts from Congress. This is why they are called tax expenditures.
Fact Three: The FAIRtax Makes The House ObamaCare Replacement Work Better.
Some FAIRtax supporters are concerned that the passage of a health care plan that relies on tax credits means that the income/payroll tax system must be kept in place. This is not the case.
Let’s assume that a health care plan is passed June 1, 2017 and provides income tax credits to families to help offset the costs of purchasing the insurance. Then let’s assume that the FAIRtax is enacted January 1, 2018.
As explained above, a tax credit is just a payment from the U.S. Treasury. The FAIRtax provides a tax rebate (prebate) to each eligible family that eliminates the FAIRtax on all family purchases up to the poverty level. The prebate is administered by the Social Security Administration (SSA).
The tax credits proposed under the health care reform bill are based on income. Under the FAIRtax, wages and self-employment income must be reported to the SSA to determine eligibility for retirement and disability benefits. Therefore, it is very simple to just determine the amount of the tax credit owed based on income reported to SSA and then increase the prebate by a monthly amount to equal the tax credit.
For example, if the family were entitled to receive a tax credit of $4,800 to help pay for health insurance, then the prebate would be increased by $400 per month. A very simple administrative procedure that eliminates the complexity of the income tax but accomplishes the same objective—providing money to help the family pay for health insurance.
Conclusion
The D.C. Elites are desperate in their attempts to keep in place the income/payroll tax system that so richly rewards them and their friends in Congress. They want us to believe that money paid through an income tax credit is somehow better than payments paid directly by Congress.
However, this is another attempt to deceive us. A tax credit, like the prebate, is still a payment from the U.S. Treasury.
As Dr. Cebula’s study indicates, evasion of the income/payroll tax system is escalating. If Congress and the President want to retain this failed system, they will have to dramatically increase the number of IRS audits and increase punishment for evaders.
While many of us don’t sympathize with people evading their legal income/payroll tax obligations and making us pay their share, the IRS will be auditing all of us—not just the evaders. All of us know the abuse that an aggressive and empowered IRS can cause and none of us want that.
The answer is to pass the FAIRtax. Then the intent of Congress, to reduce the cost of healthcare by providing money to families, is more economically and effectively accomplished. Only the D.C. Elites will oppose this result and these are the people who have the ear of Congress. We must change this.
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
Abraham Lincoln also said, “Things may come to those who wait, but only the things left by those who hustle.”
We may only have a limited time to stop the fake tax reform being promoted by some in Congress. If it passes, then the Elites will say that we need to wait before we consider any more changes. To stop this fake reform, we must be able to ensure that our message is clearly heard not only by Congress but also by President-elect Trump. To do this we need your help.
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FAIRtax E-Book
AMERICA’S BIG SOLUTION - An E-book For Beginners
To all things, there is a beginning and an end. The end is when HR 25, The Fair Tax Act of 2017 becomes law. If someone needs to start from the beginning with the FAIRtax, this e-book is what they need. We all need to become engaged in order to force Congress and President Trump to adopt the FAIRtax as the new tax plan. We all need to come up to speed on the FAIRtax. This e-book is the first step.
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AMERICA'S BIG SOLUTION by Florida Volunteer Terry Tibbetts has been written to give people of all ages a basic introduction to the FAIRtax and encourage them to learn more about the most thoroughly researched tax plan ever presented to Congress. It is a light hearted approach to a very serious subject.
Everyone needs to know that we have an alternative to federal income tax and the criminal enterprise known as the IRS. Everyone needs hope and AMERICA'S BIG SOLUTION provides that hope. AMERICA'S BIG SOLUTION is an alternative the social media platforms competing for our attention.
You can even 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!
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There is an easy way to introduce your friends to the FAIRtax. And it’s completely free. Tell them to listen to FAIRtax Power Radio which is a free weekly podcast. As described below, you can listen on your computer or on your smartphone. This is a great way to get more people to become knowledgable about the FAIRtax.
Through the “Hope and Change” of the last eight years and the promises to “Make America Great Again,” what is Congress and the new administration offering us as tax reform? At this point, both President Trump and the Speaker Ryan are offering a modification of the current failed system. As Kerry Bowers, one of The FAIRtax Guys interviewees, said about Speaker Ryan’s “A Better Way” plan, “It transforms the tax plan from a personal income tax, a corporate income tax and a payroll tax enforced and administered by the IRS to a system that includes a personal income tax, a corporate income tax and a payroll tax enforced and administered by the IRS.” Is this REAL reform? No!
As The FAIRtax Guys discuss, this plan does not represent “Hope and Change” and is not the way to “Make America Great Again.” We need true tax reform; we need the FAIRtax. And we provide the listener new and novel ways to discuss the FAIRtax with your friends and neighbors every week.
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For your iPhone or Android, we have a free 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 in and tell everyone you know about the FAIRtax Power Radio podcasts.
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