We Get Less of What We Tax
This week’s Chairman’s Report is written by Randy Fischer, an AFFT vice-president and board member.
Arthur Laffer, a prominent American economist, developed a bell-curved analysis that showed the relationship between income tax rates and the total tax revenue the Treasury receives. This "Laffer Curve" sought to identify the tax rate that maximizes revenue for the government. In the process, it showed conclusively that higher rates often mean LESS revenue. For example, a tax rate of 100% would result in very little revenue because nobody is going to work if the government is going to take every penny they make.
The Laffer Curve influenced then President Ronald Reagan, who led a charge in the 1980's that resulted in one of the biggest tax cuts in history. Despite the supposed mathematical reality that lower income tax rates will result in less money coming into the treasury all else being equal, the number of dollars flowing into the Treasury actually increased dramatically during Reagan's time in office.
In 1980, total federal tax revenue was $517 billion. Under President Reagan’s supply side economics theory, that nearly doubled to $909 billion by 1988. The behavioral and economic impact of lowering income tax rates from a stimulus perspective, despite how logical it sounds to us now, wasn't really researched or considered until Arthur Laffer in the early 1970's.
We have the empirical data now. We also have an instinctive understanding that the more we tax something, the less of it we get. So why is it that in every Congressional and Presidential election cycle, we hear certain politicians harping on the need to tax us more? Let's take it one step further, and discuss the entire system of taxation. Let’s compare our current system of taxing income vs. the FAIRtax, a tax on consumption.
If we can collectively agree that we all desire a productive country, a society where people can advance, do bigger and better things, and as a result, earn more income, then why would we ever tax income at all?
People generally feel like they work hard for their money. They’ve invested a lot of blood, sweat, and valuable time away from loved ones in order to earn the income they need to provide for themselves and their families. For most of us, working is the only way that we'll ever acquire any meaningful property of our own.
Given this, is it any surprise that illegal income tax evasion has reached $1 trillion annually in the U.S.? We're psychologically disposed to lament and disdain taxation of our hard-earned income, and many will rationalize and justify illegal evasion on these and other grounds.
You may rightfully ask, "but with the FAIRtax when we tax consumption, won't the economy deteriorate because we'll get less spending due to less consumption?"
The answer is no, and to the contrary, the economy by all reasonable estimates, studies, and detailed analyses will flourish.
The U.S. becomes the tax haven of the world with a 0% corporate income tax rate, and companies and factories rush to the U.S., driving employment to new heights and unemployment to new lows.
We'll need more legal immigration than ever! Detailed analysis shows that purchasing power, real GDP, jobs, investment, wages, and even consumption by year three all increase with enactment of the FAIRtax.
Individuals across the country would keep their entire paychecks under the FAIRtax. Demand for labor would rise to unprecedented levels, driving wages even higher. Simply put, Americans will have more money in their pockets under the FAIRtax. And what happens when people have more money to spend? Well, they spend it. We saw that in the 1980's when charitable donations increased despite the tax benefit associated with these contributions decreasing under a lower rate structure.
The unusual phenomenon with spending and consumption is that with the FAIRtax, we are not taxed on what we must spend to survive because of the prebate mechanism that untaxes us on our basic necessities. Further, for two of our largest lifetime expenditures (home and auto), we can legally avoid paying the FAIRtax since it is only collected on the retail purchase of new goods and services. The vast majority of home and auto purchases are for previously owned houses and cars.
Lastly, when we spend on a new product, it will be our choice as to what class of product we purchase- the shiny new one with bells and whistles, or a more economical option. Taxing consumption rather than income will give us an unprecedented level of control over when we pay our taxes and how much we pay.
This creates an entirely different psychological paradigm. With the FAIRtax, we enjoy the fruits of a burgeoning economy and spend and pay consumption tax at our discretion, rather than having the toil of our labor confiscated from us in the form of an income tax.
So, like President Reagan before us, which should we choose?
CONCLUSION
Randy clearly shows the benefits of the FAIRtax and why it is a winning strategy with the public.
The choice is easy—do we want a system for funding the federal government:
- That is so simple everyone can understand it.
- That shows the costs of the federal government on every retail receipt so all of us understand what we are paying.
- That helps U.S. companies compete with foreign competitors.
- That keeps jobs in the U.S. rather than exporting them to other countries.
- That permanently establishes the solvency of Social Security and Medicare.
- THAT IS THE LARGEST TRANSFER OF POWER FROM D.C. TO THE PEOPLE SINCE THE CONSTITUTION WAS ADOPTED.
D.C. is ignoring the one real solution that allows us to remain citizens and not subjects, the FAIRtax. The FAIRtax is simple, non-invasive, but most of all, IT WORKS!
THE SOLUTION—PASS THE FAIRTAX!
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.
THE SOLUTION—PASS THE FAIRTAX!
Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations? The only way that they will is if the rest of us demand it!
Isn’t it time to end this ludicrous tax collection system and the IRS?
There is going to be a vote on the FAIRtax in the House of Representatives.
We now have the opportunity to force all Members of the House to show where they stand. They can:
- Vote for the present income/payroll tax system or for the FAIRtax.
- Support the corrupt income tax and the IRS or eliminate it. It can’t be any simpler than that.
- Hide the true cost of their government or pass the FAIRtax and show everyone the true cost of government on each retail receipt.
- Support the largest transfer of power from government to the people, the FAIRtax, or not.
If Members think that the FAIRtax needs to be amended to address a problem, then they can propose the change. Don’t let reject the entire bill because it has a perceived “flaw” that can be addressed.
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
By contributing (investing) $10.40 per month, you help provide a financial base to AFFT. If you can make larger contributions (investments), these will be used not for salaries, as we are all volunteers, but for the needed updates to our economic studies which will be vital for all future years.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.