The Chairman’s Report July 22, 2022

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  • Source: FAIRtax
  • 07/22/2022

 


John W. Childs

John W. Childs is the Chairman of J.W. Childs Associates, L.P., a private equity and special situation investment firm founded in 1995, currently focusing on life science, real estate and consumer brands investments. Previously, John was Senior Managing Director of the Thomas H. Lee Company from 1987 to 1995, where he had broad responsibilities for originating, analyzing, negotiating, and managing leveraged buyout transactions, such as Snapple and General Nutrition Company. Prior to that Mr. Childs held various executive positions in the investment area at the Prudential Insurance Company of America, ultimately serving as Senior Managing Director in charge of the Capital Markets Group. He is currently a Director of Realm, LLC, a premium Napa wine company, Biohaven Pharmaceuticals, Pyramid Biosciences, OMAX Health, VeraDermics and Basin Holdings. Prior to their sale, he was Chairman of the Board of Kosta Browne, Sunny Delight and CHG Healthcare Services. John is also on the board of Delta Waterfowl, Waterfowl Research Foundation and the Wild Salmon Center, focusing on wildlife conservation. Mr. Childs has a B.A. from Yale University and a M.B.A. from Columbia University.  

John once told me that he would likely pay far less in federal taxes under the present income tax system, but he believes that the FAIRtax would be better for future generations and the country in general.  He wrote this article that appeared in the April 29, 2022 issue of the New York Sun and has given us permission to reprint it here. 


"No, No! Not That Way," political cartoon by Clifford Berryman, 1933 (detail). Wikimedia Commons
 
OPINION
 
How Do You Spell Relief? Try S-a-l-e-s T-a-x

Let Walmart and Amazon be the tax collectors. Odds are they will be vastly more efficient than the IRS, which at this point can’t even return the phone calls of bewildered taxpayers.

Remember the age old question about whether a million monkeys typing for a million years would recreate a Shakespearian play? That question is unanswered but the monkeys have succeeded in producing the United States Tax Code. Actually, given the mindless impenetrability of the 80,000-plus pages of the tax code and accompanying regs, it is insulting to our simian forbears to associate them with it. 

Now President Biden wants to double down on this system by hiring more monkeys to expand and enforce the code. Following the example of Lois Lerner, enforcement will be selective. Isn’t that, though, the Democratic way? Before embarking on this exercise in national masochism let us examine the cost and benefits buried in the current 80,000 pages of our tax instruction manual.

A few years ago, I commissioned Art Laffer to do a study of the cost of compliance with the American Tax Code. The instructions were to ignore any economic theory about investment distortion or misaligned economic incentives, as important as these might be, and just focus on the quantifiable, out-of-pocket cost of compliance. Answer questions like: How much do we pay H&R Block, how much of our valuable time do we devote to annual compliance? Just the facts.

The answer was an astonishing $420 billion, and remember this was several inflationary years ago. Additional code complexities and intervening inflation have undoubtedly driven that number up. By Congress’s own admission, this complex, inefficient system fails to collect some half a trillion dollars a year in various forms of non-compliance. This is what Mr. Biden’s reinforcements are designed to address.

Bear in mind, too, that this noncompliance number ignores the underground economy — drug dealers, cyber-fraudsters, and millions of ordinary Americans whose untaxed economic activity is estimated in hundreds of billions of sponduluks.

There is a better way — replace the entire income tax monstrosity with a national consumption tax, i.e. a national sales tax. Let Walmart and Amazon be the tax collectors. Odds are they will be vastly more efficient than the IRS, which at this point can’t even return the phone calls of bewildered taxpayers. All retailers already perform sales tax collection services for state governments. So it is hardly a leap of faith to ask them to do it for the Feds.

One of the nice features of a National sales tax is that everybody gets to pay it: when the corner drug dealer goes to Walmart, he pays his taxes.

This would be bad news for tax lawyers and accountants. As some of the brightest minds in the country now devote themselves to crafting fiendishly clever tax avoidance schemes, though, imagine what an unexpected dividend would flow from redirecting all of that creativity to productive activities. 

So let’s get this straight. Our current tax system spends around $500 billion a year in order not to collect around $1 trillion a year in non-compliance and underground activities. A consumption tax would cost virtually nothing while making sure the cheats and the crooks pay their fair share. 

That looks like a great $1.5 trillion trade. And that’s before counting the kicker from all those Elon Musks liberated from tax preparation drudgery.

Aside from the simplicity, a bizarre word for tax discussion, and efficiency of the consumption tax it would make a tool for controlling inflation. Huh? The time-honored approach to inflation is to crush demand with higher interest rates. As we’ve previously noted, this is the economic equivalent of chemotherapy. In addition to the pain of recession and unemployment, the blunt instrument of high interest rates inhibits supply creation, the other antidote to inflation, by raising the cost of capital. Like a bad drug, raising rates has a lot of off-target effects.

In addition to raising the cost of capital, thus inhibiting supply growth, it increases the budget deficit. After all, who is the biggest consumer of debt capital: the United States Treasury, of course. If the cost of Treasury bonds got back to the 1970s, circa 10 percent, the interest cost of servicing the debt would consume, on an order of magnitude, something like 75 percent of all tax revenue. 

Don’t worry, this wouldn’t crowd out any other federal expenditures, it would just mean more borrowing: a vicious cycle putting greater pressure on rates.

So why are we raising rates to fight inflation? To control demand, of course. As demand dries up, prices must fall. But with a tax on consumer spending, you could control demand by raising taxes instead of interest rates. Raising the consumption tax would reduce consumption. This targeted attack on demand might also induce recession and unemployment, but since it doesn’t involve manipulating interest rates, the economic slowdown would mean that rates would fall. 

The cost of capital would then be poised to fuel to the next supply side expansion.

And the Treasury? It would get a twofer — lower rates would mean less interest expense. 

Higher consumption taxes would mean more tax revenue. This is almost, forgive me, Keynesian in its elegance. You’d be controlling inflation by threatening the economy with a budget surplus. And the monkeys in Washington could take a break.

CONCLUSION

John has reached his conclusions not based on computer models but from his lifetime of creating successful businesses and providing employment to thousands of people.  

We can all agree that the income/payroll tax system is broken and no longer working—we can’t repair it but we can replace it with the FAIRTAX!

ALL AMERICANS MUST JOIN US BEFORE IT IS TOO LATE AND THE WONDERFUL COUNTRY WE LOVE IS FURTHER HARMED.

Join us and TAKE BACK CONTROL OF OUR COUNTRY—NOT WITH BULLETS BUT WITH THE ELIMINATION OF ONE OF THE BIGGEST THREATS TO OUR LIBERTY AND ECONOMIC PROSPERITY—THE INCOME/PAYROLL TAX.

We all should remember Edmund Burke’s warning that applies to our efforts to TAKE BACK CONTROL,
 
“Nobody made a greater mistake than he who did nothing because he could do only a little.”


We should also remember this quote from George Orwell's 1984, which, if we do nothing, may foretell your and your 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? 

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!

TAKE BACK CONTROL!   Help us PASS THE FAIRTAX!

The IRS will be gone and we will pay our taxes when we make purchases.  

WE and not the Ruling Class and their minions in D.C. will decide how much federal tax we pay!

WE will know how much tax we and everyone else are really paying because taxes will no longer be hidden from us.  It will be clearly shown on every retail receipt.

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. 

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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Americans for Fair Taxation® is a 501(c)(4) non-profit, non-partisan grassroots organization solely dedicated to replacing the current income tax system with a fair, simple and transparent national consumption tax – the FAIRtax® Plan. We rely entirely on contributions from concerned citizens like you who want a tax system that will generate jobs and stimulate the economy. Welcome to the FAIRtax team!

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