How does the FAIRtax address inherited wealth if the Estate Taxes are repealed?
John Linder
Our Chairman’s Report this week is written by John Linder in response to some questions he received. 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 has also started 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 are his answers.
HOW DOES THE FAIRTAX ADDRESS INHERITED WEALTH IF THE ESTATE TAXES ARE REPEALED?
As to the building of generational wealth; all wealth is ultimately spent. If not spent by the creator of the wealth, then by his or her heirs. But it is all spent.
When it is spent on new retail goods or retail services, then the FAIRtax will be paid at that time. Under the present income/payroll tax system, many times wealthy heirs use the inherited assets, obtain loans secured by the assets, use the loaned funds to purchase assets like yachts and pay only a small amount of interest and no federal income taxes.
Money donated to genuine charities is ultimately given to people who spend it and it is then subject to the FAIRtax.
Today many of the wealthy (Gates, Zuckerberg and Bezos) have created foundations and funded them with charitable donations to further their political or business pursuits while gaining huge federal income tax advantages.
For example, if someone had stock with a cost basis of $1.00 and they sold it for $501 then they would have a capital gain of $500 which would be taxed at a minimum of 20% or $100.
By donating their stock to their personal foundation, they are allowed to deduct $500 and, depending on their federal tax rate, can save at least $100 on their federal income taxes.
It is alleged that the Gates Foundation gives billions to the WHO and similar entities if the billions are granted to poor African nations to buy various vaccines for their children from companies in which Bill Gates is a large shareholder.
WON’T THE FAIRTAX ALLOW THE WEALTHY TO RECEIVE HUGE TAX BREAKS?
The wealthy don’t pay much in federal income taxes. The same guy who is going to jail for purloining Trump’s tax returns also released the returns of many other wealthy people.
Guess what? These returns show that the wealthy don’t pay much in taxes. They can afford to hire the expertise to legally avoid taxes. We learned that Trump’s many depreciation schedules from his real estate kept his taxes down to $750 for two tax years and $0 in others. But wealthy people are big spenders at which point they will be taxed when they spend the money.
DOESN’T THE FAIRTAX IMPOSE A 30% TAX ON EVERYTHING YOU BUY?
This is a correct statement when you add the FAIRtax on top of what you spend on new retail purchases and retail services. This is called a “tax exclusive” basis. We chose to treat it on a “tax inclusive” basis because the income tax that we are replacing is on a tax inclusive basis. If you want to treat it on an exclusive basis let us treat the income tax the same way. The average income tax for those who pay income taxes is 14.6%. Add to that the 15.3% they pay in Medicare and Social Security, and they give the government 29.9% of what they earn. Or, to treat it like an exclusive tax and compare it to the 30% FAIRtax, it is 29.9 divided by 70.1 (what you have left to spend) or 42.6%. Now to be fair, would you rather give the government 30% on top of what you spend or 42.6% on top of what you take home of your earnings?
WILL THE FAIRTAX RAISE ENOUGH MONEY TO FUND THE FEDERAL GOVERNMENT?
The FAIRtax is designed to replace the money raised by the taxes it replaces. Consumption is a far more dependable predictor of economic activity than is income. Studies have been done showing the growth in consumption from 1929 through the 90s while income stumbled many times, particularly during the depression.
We hired an economic group out of Boston to measure the comparison of revenue from income or consumption immediately after the 2010 financial recession and the FAIRtax would have collected 10% more revenue than did the income tax. Consumption took a very short hit while income fell off the table for several years.
DOES THE FAIRTAX INCREASE TAXES ON WORKING FAMILIES?
The FAIRtax not only DOES NOT INCREASE TAXES on working families - it is the only tax reform proposal of the past 50 years that totally untaxes them.
This is because of the prebate. The prebate goes to every family at the first of each month. It is based on the size of the family. The prebate ensures that every family can consume new goods and retail services up to the poverty level that is determined each year by the Department of Health and Human Services.
In 2023, a family of four could spend about $40,000 on new retail goods and retail services and pay NO FAIRTAX. If the family purchases some used retail goods, like a used car or used toys for the kids, these are not subject to the FAIRtax.
ARE THERE HIDDEN TAXES IN THE PRICE OF RETAIL GOODS?
Here is another benefit of the FAIRtax for not only lower income people but for everyone—retail prices will go down!
Here is why. Imagine the number of companies involved in the process of getting a loaf of bread to your table. Companies take ore out of the ground for companies to turn into steel to build tractors and trucks. The wheat companies and oil companies and bakeries and distribution companies and retail outlets all have costs of doing business. They pay labor costs, rent, utilities, equipment, federal and state taxes and accountants and attorneys to avoid the taxes, and every one of those expenses increases the price of the goods that consumers purchase.
The consumer is therefore paying these embedded federal income taxes in every retail purchase they make.
This is not the case under the FAIRtax. Businesses add no additional federal taxes to their product’s price. We all benefit by seeing retail prices reduce by 15% to 25% because of competition.
HOW DOES THE FAIRTAX GIVE EVERYONE A PAY RAISE?
Under the FAIRtax, every working family gets to keep their whole paycheck, no withholding. The first of each month, they receive the prebate that eliminates the FAIRtax on all purchases up to the poverty level. They also see a price drop with the elimination of the hidden taxes embedded in retail products. Working families see a dramatic increase in their purchasing power.
WON’T THE FAIRTAX SHIFT THE COST OF ADMINISTRATION TO THE STATES?
The state sales tax departments with whom I discussed the administration of the FAIRtax being done by them are thrilled. Forty-five states already have systems for collecting their state sales taxes and sophisticated systems for auditing those collections. The administration of the FAIRtax will not add much complexity and the states get paid to do it.
The FAIRtax pays them 25 basis points for collecting the FAIRtax. In addition, the FAIRtax pays the retailer 25 basis points for collecting the money.
I had sales tax officers from two states call me while I was in Congress to tell me that they would be pleased to take over the tax collection for the FAIRtax in any of the 5 states that do not currently collect sales taxes. They know how to do it and think the additional revenue would be helpful to them.
I personally travelled to 30 states speaking about the FAIRtax and have done thousands of talk radio shows. So have the volunteers who are currently carrying the heaviest burden. All it takes is raising the money that we can use to educate more people.
We will be delighted to accept your generous contribution.
CONCLUSION
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.”
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 in your and your family’s future.
John has also started 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 are his answers.
HOW DOES THE FAIRTAX ADDRESS INHERITED WEALTH IF THE ESTATE TAXES ARE REPEALED?
As to the building of generational wealth; all wealth is ultimately spent. If not spent by the creator of the wealth, then by his or her heirs. But it is all spent.
When it is spent on new retail goods or retail services, then the FAIRtax will be paid at that time. Under the present income/payroll tax system, many times wealthy heirs use the inherited assets, obtain loans secured by the assets, use the loaned funds to purchase assets like yachts and pay only a small amount of interest and no federal income taxes.
Money donated to genuine charities is ultimately given to people who spend it and it is then subject to the FAIRtax.
Today many of the wealthy (Gates, Zuckerberg and Bezos) have created foundations and funded them with charitable donations to further their political or business pursuits while gaining huge federal income tax advantages.
For example, if someone had stock with a cost basis of $1.00 and they sold it for $501 then they would have a capital gain of $500 which would be taxed at a minimum of 20% or $100.
By donating their stock to their personal foundation, they are allowed to deduct $500 and, depending on their federal tax rate, can save at least $100 on their federal income taxes.
It is alleged that the Gates Foundation gives billions to the WHO and similar entities if the billions are granted to poor African nations to buy various vaccines for their children from companies in which Bill Gates is a large shareholder.
WON’T THE FAIRTAX ALLOW THE WEALTHY TO RECEIVE HUGE TAX BREAKS?
The wealthy don’t pay much in federal income taxes. The same guy who is going to jail for purloining Trump’s tax returns also released the returns of many other wealthy people.
Guess what? These returns show that the wealthy don’t pay much in taxes. They can afford to hire the expertise to legally avoid taxes. We learned that Trump’s many depreciation schedules from his real estate kept his taxes down to $750 for two tax years and $0 in others. But wealthy people are big spenders at which point they will be taxed when they spend the money.
DOESN’T THE FAIRTAX IMPOSE A 30% TAX ON EVERYTHING YOU BUY?
This is a correct statement when you add the FAIRtax on top of what you spend on new retail purchases and retail services. This is called a “tax exclusive” basis. We chose to treat it on a “tax inclusive” basis because the income tax that we are replacing is on a tax inclusive basis. If you want to treat it on an exclusive basis let us treat the income tax the same way. The average income tax for those who pay income taxes is 14.6%. Add to that the 15.3% they pay in Medicare and Social Security, and they give the government 29.9% of what they earn. Or, to treat it like an exclusive tax and compare it to the 30% FAIRtax, it is 29.9 divided by 70.1 (what you have left to spend) or 42.6%. Now to be fair, would you rather give the government 30% on top of what you spend or 42.6% on top of what you take home of your earnings?
WILL THE FAIRTAX RAISE ENOUGH MONEY TO FUND THE FEDERAL GOVERNMENT?
The FAIRtax is designed to replace the money raised by the taxes it replaces. Consumption is a far more dependable predictor of economic activity than is income. Studies have been done showing the growth in consumption from 1929 through the 90s while income stumbled many times, particularly during the depression.
We hired an economic group out of Boston to measure the comparison of revenue from income or consumption immediately after the 2010 financial recession and the FAIRtax would have collected 10% more revenue than did the income tax. Consumption took a very short hit while income fell off the table for several years.
DOES THE FAIRTAX INCREASE TAXES ON WORKING FAMILIES?
The FAIRtax not only DOES NOT INCREASE TAXES on working families - it is the only tax reform proposal of the past 50 years that totally untaxes them.
This is because of the prebate. The prebate goes to every family at the first of each month. It is based on the size of the family. The prebate ensures that every family can consume new goods and retail services up to the poverty level that is determined each year by the Department of Health and Human Services.
In 2023, a family of four could spend about $40,000 on new retail goods and retail services and pay NO FAIRTAX. If the family purchases some used retail goods, like a used car or used toys for the kids, these are not subject to the FAIRtax.
ARE THERE HIDDEN TAXES IN THE PRICE OF RETAIL GOODS?
Here is another benefit of the FAIRtax for not only lower income people but for everyone—retail prices will go down!
Here is why. Imagine the number of companies involved in the process of getting a loaf of bread to your table. Companies take ore out of the ground for companies to turn into steel to build tractors and trucks. The wheat companies and oil companies and bakeries and distribution companies and retail outlets all have costs of doing business. They pay labor costs, rent, utilities, equipment, federal and state taxes and accountants and attorneys to avoid the taxes, and every one of those expenses increases the price of the goods that consumers purchase.
The consumer is therefore paying these embedded federal income taxes in every retail purchase they make.
This is not the case under the FAIRtax. Businesses add no additional federal taxes to their product’s price. We all benefit by seeing retail prices reduce by 15% to 25% because of competition.
HOW DOES THE FAIRTAX GIVE EVERYONE A PAY RAISE?
Under the FAIRtax, every working family gets to keep their whole paycheck, no withholding. The first of each month, they receive the prebate that eliminates the FAIRtax on all purchases up to the poverty level. They also see a price drop with the elimination of the hidden taxes embedded in retail products. Working families see a dramatic increase in their purchasing power.
WON’T THE FAIRTAX SHIFT THE COST OF ADMINISTRATION TO THE STATES?
The state sales tax departments with whom I discussed the administration of the FAIRtax being done by them are thrilled. Forty-five states already have systems for collecting their state sales taxes and sophisticated systems for auditing those collections. The administration of the FAIRtax will not add much complexity and the states get paid to do it.
The FAIRtax pays them 25 basis points for collecting the FAIRtax. In addition, the FAIRtax pays the retailer 25 basis points for collecting the money.
I had sales tax officers from two states call me while I was in Congress to tell me that they would be pleased to take over the tax collection for the FAIRtax in any of the 5 states that do not currently collect sales taxes. They know how to do it and think the additional revenue would be helpful to them.
I personally travelled to 30 states speaking about the FAIRtax and have done thousands of talk radio shows. So have the volunteers who are currently carrying the heaviest burden. All it takes is raising the money that we can use to educate more people.
We will be delighted to accept your generous contribution.
CONCLUSION
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.”
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 in your and your family’s future.