Today’s Chairman’s Report is authored by Dr. David Kendall. Dr. Kendall is on the AFFT Advisory Board. He is a Professor of Economics and Finance at the University of Virginia's College at Wise. He was Dean of the School of Business at St. Edward's University in Austin, Texas and Chief Economist for Empire Funding Corporation, also of Austin.
A Bridge Too Far?
President-elect Donald Trump has proposed eliminating federal income taxation on tips, overtime pay, Social Security benefits, veterans’ income, and income of first responders. Based on his public comments, Trump may be exploring with advisors eliminating federal taxation of personal income altogether, to the dismay of some and cheers of others.
A super majority of economists who specialize in public finance agree that the income tax code with its tens of thousands of pages is mind-numbingly and unnecessarily complex. Most economists agree that a consumption-based tax offers advantages compared to an income tax. Most ordinary citizens will likely agree, once they hear the differences explained.
The 119th Congress will likely revisit federal tax law in 2025, since major provisions of the Tax Cuts and Jobs Act passed in 2017 will sunset January 2026. Given Trump’s campaign statements, perhaps it is “now or never” time for real change in federal tax policy, instead of the usual tinkering around the edges.
With Trump’s leadership, Congress likely will be persuaded to debate HR 25, The Fair Tax Act, and give the bill a vote. First introduced in 1999, HR 25 has been reintroduced in essentially the same form in every new Congress. For 25 years, the Ways and Means Committee has not passed the bill out for consideration and debate by the full House.
If enacted, the “FairTax” would eliminate all federal income taxes for individuals and corporations; it would also eliminate payroll withholding taxes, which are now the heaviest federal tax burden for the working poor. The FairTax calls for collecting the same federal tax revenue with a simple national retail sales tax levied on all new goods and retail services, while completely untaxing America’s lowest income citizens.
The FairTax also calls for repeal of the 16th Amendment, which in 1913 gave Congress the power to impose a direct tax on citizens’ incomes, a power not granted originally by the Constitution. If repeal of the 16th Amendment is not ratified within seven years of Congress passing HR 25, The Fair Tax Act would itself be repealed automatically to ensure that Americans would not end up with both a federal income tax and a national retail sales tax piled on.
The FairTax will eliminate all individual tax returns, and April 15 would become just another pleasant spring day. The FairTax would replace the IRS with a Sales Tax Bureau within the Department of the Treasury to coordinate states’ tax collection agencies, which would physically collect the tax and remit revenue to the U.S. Treasury.
The FairTax will collect the national sales tax from every retail consumer in the country at the point of sale, including from criminals and undocumented persons who now operate in the underground economy. With a larger base, the average tax burden for individual citizens will go down, while the Treasury continues to collect the same federal tax revenue. The FairTax is “revenue neutral”; moving to the FairTax has no effect on federal spending, to the chagrin of those who auger for less federal spending.
Studies and former IRS Commissioner Rettig estimate that the underground economy is something north of $1 trillion per year, all of it untaxed, which is tax evasion on a scale that simply could not happen with the FairTax. Significant evasion of the FairTax would require retailers like Walmart, Amazon, Kroger, Costco, and your local dentist to be willing to help consumers avoid the sales tax; why would they?
A monthly “prebate,” will reimburse a family of four to exempt from taxation the first $40,000 of purchases, which means the FairTax would not be a regressive tax, unlike current payroll taxes, which are the most regressive federal tax. The prebate is to the FairTax what the personal exemption is to the federal income tax, just quicker, and most would say fairer.
The FairTax would bring greater accountability and visibility to federal tax collection. All Americans would understand exactly how much federal taxes they pay. If it desired, Congress could vote to collect larger federal tax revenue by raising the national sales tax rate. Doing so would be entirely visible, which would be a good thing.
The FairTax offers still more. Eliminating the federal income tax will increase foreign investment in the United States. It will also give U.S. firms incentives to keep new manufacturing capacity in the United States, expanding jobs and quickening economic growth, which is exceptionally important.
Increasing economic growth by just one-half of one percent per year above its long run rate of two percent per year could increase average household income by $1,260 per year in just one year. In ten years, average household income would be higher by $9,600 per year; in 20 years, by an astonishing $73,500 per year.
Businesses and other organizations spend more than 6 billion hours each year complying with the federal tax code – time and expense wasted. Economists estimate that compliance costs are $350 billion to $450 billion annually. In fiscal year 2023 America’s defense budget was about $850 billion.
Under the FairTax businesses would reduce retail prices for goods and services. For businesses, taxes and compliance costs are like any other cost of doing business; they must be recovered in prices. Retail prices would fall because businesses would no longer be embedding income/payroll tax liability and compliance costs in their prices. Consumers could see retail prices drop by 10 to 25 percent.
If the FairTax rate is 30 percent, as proposed by HR 25, the retail cost of a $100 purchase plus the tax would be $130–until the base price dropped to more like $80 plus the $24 sales tax. A $104 purchase, including tax, looks agreeable enough, since we get all of our paycheck each payday with no federal withholding.
The federal income tax is widely regarded as inefficient, mind-numbingly complex, and yes, some would say unfair. Is asking Congress to pass the FairTax a bridge too far? Maybe not, if President Trump and Speaker Johnson decide to back the bill.
CONCLUSION
Dr. Kendall effectively states the case for implementing the FAIRtax to replace the present income tax.
Of course, the best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16th Amendment as well so no future administration can ever again shackle the American people with an income tax again.
We must come together and ensure that real tax reform, the FAIRtax, is not subverted by the Elites in D.C.
This will take the diligent efforts of all of us. We need your financial assistance and we need your grass roots assistance.
Please email us at info@fairtax.org and we will give you some options on how you can best help us.
At a minimum, please call your Congressional representative and ask if he or she supports the FAIRtax. If so, thank him/her for their support and suggest they become a cosponsor of HR-25 if they’re not one already. If not, ask why not. If your representative claims to be unfamiliar with the FAIRtax, offer to have someone come to their office and explain it to them.
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?
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
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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.