The Chairman’s Report March 26, 2021

THE WEALTHY MAY DECIDE ITS TIME TO SUPPORT THE FAIRTAX

The FAIRtax has always been a remarkable thing.  But now, nearly 30 years after its creation, our appreciation of just how remarkable it is continues to grow.  The FAIRtax came into being when a group of wealthy businessmen in Houston came together, enlisted their other wealthy friends, and commissioned a group of accomplished economists to design a tax system that was as close to perfect as they could make it.  The result came to be known as the FAIRtax, and Americans for Fair Taxation (AFFT) was born.

The men behind the FAIRtax often commented that enacting their creation would increase their own personal federal tax bills significantly.  So why did they support it?  BECAUSE THEY KNEW IT WAS THE BEST THING FOR THEIR CHILDREN, GRANDCHILDREN, THE COUNTRY AND ITS CITIZENS.

Like other wealthy people, AFFT’s founders were not afraid of the IRS.  They could afford to:
 

• Hire the best tax professionals to assist them with their income tax planning;
• Pay these same professionals to negotiate with the IRS and even go to court to fight an adverse IRS decision;
• If they ultimately lost, they could afford to pay the unpaid taxes, interest and penalties.    

One of these men told me that IRS agents were in his company every day conducting an income tax audit on him and his companies.  He smiled when he related that he put them in a small windowless room where the air conditioning (this was in Houston) only cooled the room down to the low 80’s in the summer and heated to the low 60’s in the winter.  When the agents complained, he would always send someone to investigate, but somehow, they never could find the cause of the cooling or heating problem.

Many people wonder why there is not more support for the FAIRtax among America’s wealthiest taxpayers.  The wealthy benefit greatly from strong economic growth, and they can surely see that economic growth under the FAIRtax would far surpass anything that could be achieved under the income tax.  The reason there’s not more support for the FAIRtax at the upper end of the economic scale is that many of America’s super rich have arranged their affairs in such a way that they pay far less in income taxes than they might pay under the FAIRtax.

However, two recent studies will lend support to the stated belief in D.C that the wealthy are not paying their “fair” share of federal income taxes.

A report released on March 18, 2020 by Syracuse University’s Transactional Records Access Clearinghouse gives one explanation.  The report found:
 

• The number of IRS revenue agents that are skilled enough to perform audits of complex tax returns is down 43% from 2010.
• The number of millionaires has nearly doubled since fiscal year 2012.
• In 2020, the IRS audited 11,331 taxpayers who reported over a million dollars of income—down 72% from the 40,965 such returns audited in 2012.
• In 2020, fewer than 2 out of every 100 taxpayers reporting over a million dollars of income were audited.
• In 2012, audits of millionaires turned up $4.8 billion in unreported taxes. Now, with the number of audits two-thirds lower, the government uncovered only $1.2 billion in unreported taxes in FY 2020.
• Nearly two out of every three of the 755 largest corporations in the country - those with over $20 billion in assets - were not audited last year. As recently as 2012, nearly all such returns (93%) were being examined by the IRS.
• In 2012, audits of these corporate giants turned up $10.0 billion dollars in unreported taxes but only $4.1 billion in 2020.
• For corporations reporting over $250 million in assets, 2012 audits turned up $24.4 billion in unreported taxes but that fell to just $5.4 billion in 2020.
• Taxpayers convicted as a result of IRS criminal investigations reached an all-time low in 2020 - just 533 out of the hundreds of millions of taxpayers in this country. And just 255 of these convictions were for tax fraud or other Internal Revenue Code violations.

A report issued by the National Bureau of Economic Research on March 21, 2020 studied tax evasion by the top 1% of taxpayers.  It concluded:
 

• Specifically, random audits do not capture most tax evasion through offshore accounts and pass-through businesses;
• The top 1% adopt a technology that conceals evasion.
• Unreported income as a fraction of true income rises from 7% in the bottom 50% to more than 20% in the top 1%, of which 6 percentage points correspond to undetected sophisticated evasion.

CONCLUSION

The two reports cited above are being used in D.C. to justify adding more revenue agents who will audit the top 1% more thoroughly and collect more tax dollars.  The belief held by many Members of Congress and many bureaucrats is that the only way to become wealthy is to do something that is not “legal.”  The new agents will be under tremendous pressure to collect the “evaded” amounts.

Unfortunately, the bureaucrats will insist that the IRS go after the entire top 1%, not just the ones who are actually evading their taxes.  In cases where agents can’t find any evidence of evasion, they will likely just arbitrarily allege an income tax deficiency and seek to levy interest and penalties on the deficiency.

More and more of the top 1% of taxpayers will be hit with delinquent tax assessments that are not based on facts and the law, but instead are rooted in the political pressure being put on the IRS.

The top 1% will soon discover something that the rest of us have known for a long time—being subject to the federal income tax is a problem because the IRS doesn’t need to prove anything but just make assessments that will be very expensive to fight.

It is time that they recall the words of Martin Niemoller, the WWI German submarine commander who went to a seminary, became a prominent minister, and was ultimately sent to a Nazi concentration camp where he died.  Reverend Niemoller said:

First they came for the socialists, and I did not speak out—because I was not a socialist.
Then they came for the trade unionists, and I did not speak out— because I was not a trade unionist.
Then they came for the Jews, and I did not speak out—because I was not a Jew.
Then they came for me—and there was no one left to speak for me.
They are now coming for the top 1% of taxpayers.

As Abraham Lincoln said, “The best way to get a bad law repealed is to enforce it strictly.”

The federal income/payroll tax is a BAD LAW, and a lot more people are about to discover that they do indeed “have a dog in the fight.”

The solution—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?”