This week’s Chairman’s report comes from Jim Bennett, a retired attorney in New Jersey and member of the AFFT board, in the form of a letter responding to a critical article in Newstrail.com.
Dear Mr. Gannon,
I was disappointed with your June 27, 2023, article in Newstrail.com titled “FairTax Act: Potential Consequences and Mitigation of a Proposed 30% U.S. Sales Tax.” I hope you will agree that faulty information informed your piece and that you will reconsider your conclusions based on the many points favoring the FAIRtax.
First, imagine a tax that taxes wealth at consumption, uses the proceeds to reduce taxes on workers, and provides a full refund to cover taxes on essentials up to the poverty level. That is the FAIRtax.
Above poverty, everyone pays tax on consumption - which they can control - at the same rate, and they pay no tax on payroll or income. The bill, HR25, does not change federal spending. All programs that today’s payroll and income taxes support receive the same level of funding under the FAIRtax.
The FAIRtax adjusts Social Security benefits for seniors for any rising cost of living due to this replacement tax.
Business-to-business transactions and exports – including digital transactions - pay no tax under the FAIRtax. The United States thereby supplants Hong Kong, the Cook Islands, the Cayman Islands, Dubai, Singapore, and the Bahamas as the world’s best place to do business - free from business income tax and employer payroll tax. [Note: the article argued that the FAIRtax would force business to flee to these tax havens.] Investment pours into the United States as Fortune 100 corporations and mom-and-pop shops receive equal tax treatment.
The bases of our current tax system are income and payroll, the products of labor and capital. We tell our children to work hard, work smart, and save. But children soon grow up to learn that our 75,000-page compilation of tax statutes, regulations, and revenue rulings tells them to do the opposite. The FAIRtax rewards productive activity.
Is the FAIRtax inflationary? The sales tax is a one-time increase, allowing businesses to operate more efficiently. A more efficient economy results in lower inflation over time.
Let’s now discuss the 30% sales tax issue. While it is true that the FAIRtax, on a markup basis, imposes close to a 30% retail sales tax, no one will pay 30% more than they pay today. The FAIRtax extracts today’s business income tax of 21% - which on a markup basis is 27% - from the cost of doing business. The FAIRtax also removes the employer portion of the payroll tax, 7.65% - which on a markup basis is 8% – from the cost of doing business.
In addition to the taxes that businesses must pay, businesses incur tax compliance costs. My dentist once told me he pays more in accounting and tax preparation than he pays in taxes. Almost all tax compliance costs vanish under the FAIRtax.
One can dispute how far pretax prices will drop under the FAIRtax. However, one cannot deny that competition will drive pretax prices down in most industries, except for snob appeal items.
Thus, the combined effects of the advance refund, the elimination of individual income and payroll taxes, and the removal of business income tax, business payroll tax, and tax compliance cost components from pretax prices mean that purchasing power for most people will rise.
Under the FAIRtax, a family at poverty level making $40,000 annually and spending every dime on services and new tangible goods (the subject matter of the FAIRtax) would spend $9,200 at the cash register. But that family would receive back $9,071 as a refund and effectively pay a tax of $129. Under today’s payroll tax, that family would pay 7.65% of its earnings, or $3,060. The savings of $2,931 would more than compensate for any price rises under the FAIRtax. And if prices do rise, the refund would go up, too.
And as long as the Federal Reserve pursues sensible monetary policies, the U.S. Dollar will be stronger than ever. [Note: the original article argues that the FAIRtax is inflationary.]
So, who should not like the FAIRtax? The first group would be Congress, which views today’s tax code as its ATM. When Congress, no matter which side of the aisle, gives a tax break to one industry, campaign contributions flow. With the FAIRtax, there would be virtually no opportunity to spend through the tax code.
Lobbyists should also not like the FAIRtax. There are nearly 12,000 estimated lobbyists in D.C., over 50% of whom lobby the tax code and whose clients spend nearly $3.5 billion. Clients would only spend that money if it were worthwhile.
Tax lawyers and accountants should favor the FAIRtax. These professionals are highly skilled and can easily find related areas of work. Several accountants I know love the FAIRtax, even though it would put them out of their current jobs. They have seen the deadweight effect of our current tax code on the economy and would derive greater professional satisfaction from helping their clients grow their businesses.
I also know a Canadian attorney in Toronto who specializes in tax issues uniquely faced by U.S. citizens who live outside the country. The FAIRtax would put him out of much of his business, but he is a strong FAIRtax fan.
So, besides Congress members and lobbyists, everybody else should favor the FAIRtax.
Americans for Fair Taxation is the sponsoring organization behind the FAIRtax. Our board, state leaders, and subscriber base consist entirely of volunteers, and our funding sources are modest. We are nonpartisan and single-issue and do what we do because we believe in our cause.
I would be glad to come to New York and have coffee with you to discuss the FAIRtax. I also have research that I would be pleased to share. Please let me know if you have an interest.
Jim’s response to the article is seeking, in his nice way, to educate the authors about the errors in their analysis of the FAIRtax.
As is true of many of the articles about the FAIRtax that get placed in the media, the authors ignore some aspects of the bill and then add to the confusion by asserting that the bill contains provisions it doesn’t.
It is ok to oppose the FAIRtax and favor another type of tax reform but it is important to be intellectually honest when commenting on any position.
If someone sees a problem with the FAIRtax don’t just discard the whole idea but propose ways to correct the perceived problem.
The Members of Congress that care about us don’t have to look far for an alternative to the present income/payroll tax system that abolishes the need for the IRS. It is H.R. 25, the FAIRtax.
The FAIRtax transfers power from the government and bureaucrats to the people. We, not the bureaucrats and D.C., decide how much tax we pay.
Congress and D.C. know that there is a better alternative to the present system—the FAIRtax.
Instead of spending time and money doing endless hours of paperwork that don’t create anything of value to yourself, your family or the nation, why not eliminate the unnecessary waste?
Isn’t it time to end this ludicrous tax collection system and the IRS?
When the FAIRtax is enacted, there will be no need to fear being audited by the IRS or raided by armed IRS agents because there will be no more IRS.
There is going to be a vote on the FAIRtax in the House of Representatives. McCarthy and the other elites didn’t want it, but it was forced on them.
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.
Please stand with us and demand that your representative support a much fairer, much simpler and much more efficient way to fund the government—the FAIRtax!
The FAIRtax doesn’t pick winners and losers. Because it taxes spending, not earnings, the FAIRtax lets everyone save for their retirement tax free.
The FAIRtax will allow us to TAKE BACK CONTROL.
The income/payroll tax system is broken and no longer working—we can’t repair it but we can replace it with the FAIRTAX!
Join us and TAKE BACK CONTROL OF OUR COUNTRY AND OUR LIVES—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!
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