Today’s Chairman’s Report is written by Jade Walle. Jade is a partner of a CPA firm and is on the board of Americans For Fair Taxation.
The Economy- Inflation and the FAIRtax
As of the end of March 2022, the US Bureau of Labor Statistics notes the Consumer Price Index rose 8.5 percent over the past 12 months, the highest rate since December 1981. Inflation hasn’t been this bad in over 40 years. So, a natural question would be whether or not we’d be better off in terms of mitigating the painful effects of inflation if we had the FAIRtax rather than the current income/payroll tax system.
FAIRtax Enactment: High-Level EffectsEnacting the FAIRtax will put numerous, complex variables into play within the US economy. Let’s examine these economic effects and then determine the expected ultimate impact that the FAIRtax would have on inflation:
One of the largest and most prominent of FAIRtax benefits is the reduced cost of everything we build, make, produce and consume in the US. Depending on the industry, the FAIRtax will eliminate embedded income and payroll tax costs in US-produced goods and services, ranging from 15% to 25% or more. This includes labor cost reductions (e.g., no more employer matching of the 7.65% FICA tax paid for each employee, etc.).
These significant cost decreases will be slightly more than offset when the 23% inclusive FAIRtax is added into the retail prices of new goods and services. People living in the country illegally and those participating in the illegal underground economy become taxpayers when they make retail purchases. Everyone will pay the FAIRtax as they consume.
Twenty years of comprehensive study of the FAIRtax’s effect on our US economy can be summed up by saying it will be an enormous stimulus, a shot in the arm like we’ve never experienced before. All key measures such as real GDP, domestic investment, capital stock, employment, real wages, consumption, and the coveted crème-de-la-crème, disposable personal income, all increase with the FAIRtax.
Other Factors at PlayIt’s safe to say that the FAIRtax will supercharge the economy. In addition, people will be bringing home their entire paychecks with no payroll taxes or federal withholding. Plus, all legal households will be receiving the monthly prebate to reimburse them for the tax they paid on their basic necessities. Add in the fact that there will likely be a slight increase in the cost of everything we buy, and some might worry that the FAIRtax will lead to an overheated economy with more inflation.
No one has a crystal ball, but let’s inspect some of the other factors at play. With the FAIRtax making the US the world’s new tax haven, capital investment in the US should rise to unprecedented levels. This new level of capital investment will lead to more research and development which should fuel an increase in US productivity. Increased productivity would act to counter increasing costs as productivity improvements lead to lower per-unit costs.
As our productivity increases with capital investments, our US dollar gains strength on the world stage relative to other currencies. A rising dollar lowers the cost of importing goods (we import more goods for less dollars). This works as a natural hedge against inflation. Inflation tends to devalue a currency (with inflation, the same dollar buys less than it used to). Consequently, you don’t normally see a strong dollar in an inflationary environment.
Also, we can’t forget that the current U.S. market requires that we make purchases with after-tax dollars. That means that new $60,000 Model Y Tesla you’ve been eyeing actually costs $85,714. Assuming a 30% effective tax rate, you’d have to earn $85,714 and pay $25,714 in taxes in order to have the $60,000 needed to purchase the Tesla.
Given the massive supply chain involved with a domestically produced automobile (e.g., Tesla’s California car plant), FAIRtax studies indicate that a US automobile’s cost would drop by approximately 20%, but then there would be the new 23% inclusive FAIRtax included in the cost of the new Model Y. Diving in deeper, we see that we win with the FAIRtax since:
- Currently- we must earn $85,714 to purchase the $60,000 Tesla.
- With the 20% embedded tax costs removed, the new Tesla would cost only $48,000. Add in the inclusive 23% FAIRtax ($14,340) and the retail price rises to $62,340. At first glance, it looks like the car would cost MORE under the FAIRtax. But here’s the rest of the story.
- Remember with the FAIRtax, we bring home our entire paycheck. Therefore, with the FAIRtax we only have to earn $62,340 in order to purchase the Tesla compared to the $85,714 we’d need to earn under the income tax. Even if retail prices are slightly higher, we’ll still have more purchasing power under the FAIRtax than under the income tax.
Lastly, we can never forget that the FAIRtax, while not a spending bill per se, will bring unprecedented transparency into how Congress spends our US Treasury’s receipts. There will be no more tax credits, loopholes, deductions, exemptions, or exclusions that muddy the waters of what is actually spent in Washington. This will be a natural inhibitor to the runaway spending that politicians on both sides of the aisle have been engaging in for the last several decades. This is relevant because as we often hear, inflation can be thought of as too many dollars chasing too few products or services, and this has been front and center these past two years. Although not a guarantee we won’t spend ourselves into oblivion, the FAIRtax will elegantly guard and protect the US from such policies that are the primary drivers of inflation.
ConclusionIn business, the less complex and cumbersome and the more efficient and streamlined a system is, the better it will operate with less room for error, fraud, or abuse. Instinctively we understand this truth. Therefore, we can confidently conclude that although a multitude of factors will be in play, the FAIRtax gives us a much stronger and realistic opportunity to avoid painful and regressive inflation spikes than we get with the income tax.
What Can Each Of Us Do?
We can write letters and make calls to our elected representatives and attend Zoom town hall meetings demanding that if they really want to allow Americans to “TAKE BACK CONTROL”, the first step is to eliminate the income/payroll tax system and enact the FAIRTAX!
If you want to prevent the IRS from being further weaponized to punish those of us who may object to the D.C. opinions and dictates of what is good for us, then help us PASS THE FAIRTAX!
The IRS will be gone and we will pay our taxes when we make purchases. WE and not D.C. Elites will decide how much federal tax we pay!
If you have friends who don’t know about the FAIRtax, send them to FAIRtax.org. Have them watch the white boards under “How It Works” and, if they agree, ask them to please join us.
Then contact your Members of Congress and the President and demand that Congress pass -the FAIRtax—the only fair tax
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.”
Is it hopeless? When confronted with a seemingly impossible problem, remember the statement attributed to the author George Bernard Shaw who wrote, You see things; and you say “Why?” But I dream things that never were; and I say “Why not?”
Isn’t it time for us to ask, “Why not?”
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