It is a fact that the federal income tax allows the Swamp and Congress to make huge profits from groups seeking to protect, expand and achieve income tax benefits. While the Swamp and Congress don’t want to give up this source of income, another reason they love the income tax is that groups in both political parties see the federal income tax as a way that they can distribute wealth—just in different ways.
An editorial in the Washington Post discussed the recent $1.9 trillion stimulus bill and many of the tax changes being promoted by President Biden and people supporting him. Some of these points were:
- The stimulus increased the income of the lowest earning group by 20%.
- It’s a start on the giant task of reversing recent decades of upward redistribution of income.
- Mr. Biden and Democrats in Congress must start work on a post-Trump tax reform agenda.
- Rather than revenue-neutrality, the goal should be to eliminate further loopholes that favor the wealthy, then apply somewhat higher marginal rates to that expanded base.
- These reforms include reducing or eliminating favorable treatment of dividends and capital gains.
- Eliminate the 20% deduction for small businesses.
- Increase the corporate income tax rate from 21% to 26.5%.
- “Stiffer taxation of the rich polls well. It would be necessary and appropriate even if it didn’t.
The last statement is a direct quote and sums up the feelings of many of the group supporting President Biden. Interestingly, the authors of the article and many aligned with President Biden have no concern about a number of unintended consequences. Among them:
- The economic effects the proposed tax increases will have on small businesses, which, according to the Small Business Administration, create 1.5 million jobs annually and account for 64% of new jobs created in the U.S.
- The fact that small businesses with less than 20 employees account for 89% of all businesses in the U.S.
- These changes are going to hit Millennials (born between 1981 and 1994) and Gen Zer’s (born between 1997 and 2012) very hard because they are 188% more likely to have a goal of creating a small business than Baby Boomers.
- 52% of small business owners, when asked about their top challenge, said it was hiring and retaining good employees. Expanded and increased unemployment benefits make this a lot harder. Many people choose not to work because they can make as much or even more money collecting unemployment as they can working.
- The new stimulus bill provided that a married person receiving unemployment benefits could have $20,400 tax-free in 2020. A person earning that $20,400 as an employee would pay 7.65% or $1,560 in payroll taxes and, if they were in a 10% income tax bracket, another $2,040 in federal income taxes. So, a person collecting $20,400 in unemployment benefits would have $3,600 more in his or her pocket than someone earning $20,400 as an employee. The unemployed person may well expect similar treatment for 2021.
- The economic effects of the tax changes relating to capital gains and dividend taxation. They don’t seem to realize that taxing capital gains and dividends more heavily will result in less investment activity. Wealthy people will not continue making the same investment decisions and just willingly fork over 50% more in federal taxes.
- “Basis” refers to the value of an investment at the time you acquire it. If you sell it, you’ll pay capital gains tax on the difference between the basis and what you received for it. Present law allows for “step up in basis” on inherited assets. Say your parents bought some property for $100,000, held it for 30 years and it’s now worth $500,000. If you inherit that property under current law, your basis steps up from $100,000 to $500,000. If you then sell the property, the step up in basis will obviously save you a lot in capital gains taxes. Many who align themselves with President Biden want to eliminate this step up in basis in an effort to collect significantly more in taxes.
There are many other changes, but they all seem to be based on the idea that the “smart” people in D.C. know best when it comes to the disposal of the assets we own. Of course, many of these “smart people” have never worked a single day in a real private sector job (except AOC of course, who worked as a bartender).
The intent of this commentary is not to deny that there are arguments for the more equitable distribution of the tax burden. However, the intent is to point out that manipulating the present income/payroll tax system is the wrong way to do it.
When the FAIRtax is enacted, the “smart people” can still influence Congress and the President as to how the money should be spent. However, with the FAIRtax, it will be us, not them, who will decide how much federal tax we pay.
We may not be able to stop the “smart people” from doling out money in ways we disagree with. But the FAIRtax will make it a lot harder for them to bury provisions that benefit themselves and their friends deep within the tax code. It will also provide a much more stable tax system. We can rest assured that a good decision under today’s FAIRtax will still be a good decision years later.
Many people label these thoughts currently being promoted in D.C. as “socialism” and think of it as a relatively new thing. However, the way to make things more equitable economically has been debated for thousands of years.
Alexis de Tocqueville, the French political philosopher who lived from 1805 to 1859 wrote extensively about the American “experiment”. He said:
Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.
No doubt the “smart people” who are promoting these ideas honestly believe that they are simply addressing the inequities in the present system.
However, it will be much better for all when the FAIRtax is enacted and they can no longer get away with providing lucrative benefits for themselves and their friends while attacking or ignoring other large segments of the population.
To get to the other side—ENACT THE FAIRTAX. By eliminating the income tax, the FAIRtax eliminates the IRS and the abuses that come with it. With the FAIRtax, you pay your federal taxes at the cash register when you make retail purchases of new goods and services. No tax returns. No audits.
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?”