FAIRTAX VERSUS FLAT TAX
Steve HayesOur Chairman’s Report this week is written by John Linder. John was the original sponsor and proponent of the FAIRtax and led the fight to keep the bill before Congress. He is extremely gratified that the House has agreed to submit the FAIRtax to an up or down vote in this session.
John is also starting a substack to enhance his ability to comment on the FAIRtax and other issues of importance. Here is the link. There is no charge to join John and he invites all of you.
Here is his article.
FAIRTAX VERSUS FLAT TAX
Speaker Kevin McCarthy has promised a vote on the FairTax. Immediately some have called instead for the vote to be on the Flat Tax.
This debate has been going on for nearly 30 years now as to whether the current confusing tax code should be replaced with a flat tax on income or a tax on consumption. Rep. Dick Armey (R-Tex.) wrote a book about the Flat Tax and Steve Forbes ran for president on it. I too once supported the Flat Tax. But I came to realize that a tax on business could not be a Flat tax on revenue, we could only tax profits and not sales.
We could not tax sales because while the gross margin for software may be over 50 percent, the gross margin for groceries is less than 3 percent. We would still require a huge federal agency to audit how you arrive at taxable profit from gross sales. That would then become subject to “refinement” from future congresses. I concluded early on that the only reform of the tax code that will be lasting is to repeal it. I introduced the FairTax.
The tax we have today—that you have come to know and love—is a flat tax on income…110 years later. It was flattened out again in 1986 only to have been amended tens of thousands of times since then. It can be flattened every year, but we will still need a huge federal agency to audit how you arrive at taxable income from gross sales.
As long as Congress knows how much you make and how you make it, they are going to find a way to get the rest. Under the FairTax no one will know any details about your earnings.
The Mercatus Center at George Mason University estimated 10 years ago the hidden economic costs of complying with the code and record keeping was about $500 billion each year. Today it is close to twice that. An earlier study concluded that it costs a typical small business $724 to collect, comply, and remit $100. That is not just inefficient: That is stupid.
Our tax code has created an underground economy of $3 trillion per year and keeps in excess of about $32 trillion in offshore financial centers.
This money wants to be in our economy, but is offshore because of the tax consequences of repatriation. I once asked Federal Reserve Chairman Alan Greenspan how long it would take for that offshore money to be returned to our markets and banks if we passed the FairTax. He said months. Why do we not want that money in our markets or banks?
Today upwards of 20 percent of what you currently spend at retail represents the embedded cost of the IRS. You are paying the income tax costs and the payroll tax costs and the accountants and the attorneys to avoid the tax costs of each of the thousands of companies it takes to get a loaf of bread to your table. From getting oil out of the ground to make fuel to getting ore out of the ground to make steel.
All of those businesses have labor costs and travel costs and tax costs. The only mechanism available for any business to pay any of its expenses is through price and all of those costs end up in the price system. Those additional tax costs in our price system make us less than competitive in a global economy and driving jobs offshore.
These four problems: 1. Offshore money; 2. Costs of Compliance; 3. Underground economy; and 4. Embedded tax costs in the price system - all remain in place when we nibble around the edges of the current code. All go away by abolishing the code and taxing consumption rather than taxing income.
The FairTax is a retail sales tax levied at the checkout counter on the purchase of new goods and services for personal use. There is no tax on used goods, since nothing should be taxed more than once.
There is no tax on business activity. There is no tax on personal income, corporate income, dividends and estates. There is no gift tax, capital gains tax, dividend tax. All gone—along with the IRS.
Currently the top 50 percent of income earners pay 97 percent of all income taxes. Their income tax averages 14.6 percent plus 15.3 percent for the payroll tax. Thus, the government takes 29.9% of everything you earn. Under the FairTax you would give the government 23 percent of every dollar you spend. If you don’t spend it, you are not taxed on it.
By eliminating the IRS, we will share a $5 to $10 trillion, 10-year benefit by getting rid of the compliance costs. Prices will decline because the embedded costs are gone. Take home pay will increase since there would be no deductions from the paycheck. Those two events will create a huge increase in purchasing power.
We will become a global powerhouse by selling into a global economy with no tax component in our price system.
So that no one should have to pay taxes on necessities we devised a prebate system, which would transfer to every household a distribution sufficient to totally untax them on necessities, based not on income but on the size of the household.
The prebate for a family of four would be sufficient to allow that family to spend $39,400 with no tax consequence. Since the poor spend virtually all of their money on necessities, this will provide nearly complete relief from taxation for them.
Beyond that we are all voluntary spenders and we will all be voluntary taxpayers. We will pay taxes when we choose, as much as we choose, by how we choose to spend.
The FairTax bill anticipates the repeal of the Sixteenth Amendment. The bill says that if we haven’t repealed the Sixteenth Amendment after seven years under the FairTax system, the FairTax is repealed. Congress will have to decide whether they want to vote to return to the system that has proven to be so corrupt or repeal the 16th amendment. We believe that the American people will put enough pressure on Congress to get them to repeal the Sixteenth Amendment.
The United States will turn to the FairTax one day. Not because Congress will be struck by the wisdom of it, but out of the realization that there is no place else to go. Every tax increase in the last 60 years has been sold to the American people as only impacting the top 2 percent. The rest of America said, “Go get ‘em.” Those folks can afford to live elsewhere. And there just isn’t enough revenue there to meet all of our needs.
The FairTax untaxes necessities, broadens the base and lowers the tax rate. Everybody is treated exactly the same. Under the fair tax when Warren Buffett’s wealth is spent—and it will be spent, if not by him, then by his heirs or by foundations—it will be taxed at exactly the same rate as his secretary’s rate and he will be proud.
John’s article clearly makes the case for why we need to enact the FAIRtax now!
We now have the opportunity to force all Members of the House to either vote for the present income/payroll tax system or the FAIRtax.
They either support the corrupt income tax and the IRS or they want to get rid of it. It can’t be any simpler than that.
They either believe in being transparent and showing Americans the true cost of their government or they don’t. They either support the largest transfer of power from government to the people, the FAIRtax, or they don’t.
If they think that the FAIRtax needs to be changed, then they can propose the change. Don’t condemn the entire bill because it has a “flaw” that can be easily addressed. And don’t think for a minute that there aren’t any flaws in the income tax.
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 collects the revenue that the federal government needs to operate but does it in a way that has the least impact on our individual freedom and the least impact on our economic prosperity.
There are no tax returns to file and no records to keep. We pay our federal taxes when we make retail purchases of new goods and services, and there is no need for the IRS. If you sell a used couch or used jet ski online, there is no FAIRtax due on that transaction.
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!
The IRS will be gone and we will pay our taxes when we make purchases.
WE and not the Ruling Class and their minions in D.C. will decide how much federal tax we pay!
WE will know how much tax we and everyone else are really paying because taxes will no longer be hidden from us. It will be clearly shown on every retail receipt.
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.
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?”
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