This week’s Chairman’s Report is written by Jade Walle. A practicing CPA has been on the American For Fair Taxation board of directors.
FAIRtax and the Spending Equilibrium
When the FAIRtax is discussed at universities and with other professional audiences, a good observation that almost always arises is the fact that the FAIRtax will naturally encourage savings. That’s because the FAIRtax is a tax collection system that’s based on spending as opposed to our current income and payroll tax system that is based on earned income.
The observation then morphs into a question about economic health and whether the FAIRtax would hurt the macroeconomy, since people may spend less overall. Many also ask if sales of new products and services will see reduced demand since the FAIRtax is not collected on the sale of previously owned goods.
The answer to these concerns is that the FAIRtax will result in greater U.S. economic activity. How would this be the case given the axiom that you generally get less of what you tax, and under the FAIRtax we would be taxing the retail consumption of new goods and services?
Extensive grassroots research has been undertaken to analyze exactly how the FAIRtax, if enacted, would affect our U.S. economy. Available at fairtax.org, the findings outlined in the article “The FairTax Boosts Economic Growth and Creates Jobs: Research Summary” are striking. A key that makes this seemingly oxymoronic conclusion work is that trained economists virtually all agree that economic growth is promoted when three things are in place: a consumption tax system (rather than an income tax), a flat marginal rate rather than a graduated tax rate, and a broader tax base.
It so happens that the FAIRtax delivers on all three of these requirements for economic growth. Here is a summary of how FAIRtax enactment would affect six key economic metrics:
- Real GDP, domestic investment, employment, and real wages all significantly increase from year one onwards under the FAIRtax.
- Capital stock is flat in year one, then it ends up 17% higher after 15 years.
Consumption is the measure at the heart of today’s question though, so what happens to U.S. consumption under the FAIRtax? In years one and two after enactment, consumption does slightly decrease, approximately 0.6% and 0.8%, respectively. However, from year three onwards, U.S. consumption increases under the FAIRtax.
The research summary notes that, “Following the implementation of the FAIRtax plan, the higher take-home wage provides an immediate incentive for people to work more. During the first year, this leads to total employment growth of 3.5 percent more than the baseline scenario, which continues to grow through year 10 such that total employment is 9.0 percent above what it would have been under the baseline scenario. The impact on total labor income is even more pronounced, increasing due to both an increase in after-tax wages and the increase in the number of people working. Total labor income rises 27.4 percent in the first year. By year 10, labor income is over 41 percent higher than what it would have been under the baseline scenario.”
This research and its findings are stunning!
Another economic reality is that consumers’ purchasing behavior tends to find an equilibrium as prices fluctuate. What does this mean exactly? As the demand and ultimately the price for a brand-new Lexus falls, since in theory people will not want to pay the FAIRtax on a new vehicle, the demand and ultimately the price for a used Lexus (with no FAIRtax) will rise.
At some point, when that new car’s price drops enough and the used car’s price rises enough, people begin to say to themselves, “There’s not a huge difference between buying a new car and buying a used one. I’ll go ahead and buy the new Lexus.” At this point a new equilibrium is created and life goes on. It will be the same with the FAIRtax.
So, despite what our women’s et al intuition might instinctively believe, the FAIRtax will not hurt our economy and in fact, it does the opposite, it brings stimulus and growth to our GDP, our wages, investment, employment, capital, and yes, even consumption!
CONCLUSION
Jade has done an excellent job of explaining how the FAIRtax will dramatically improve the U.S. economy and the lives of all Americans.
Many of you have labored tirelessly for freedom from the federal income tax and the IRS. You deserve a great deal of credit for your efforts to educate the American people on the need to fund the American government in a way that is good for America and returns freedom to the American people.
It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite. We must let Congress and the President know that the best way to replace the income tax and the IRS is with the FAIRtax.
Make no mistake about it. The FAIRtax is a grave threat to the Ruling Elites. It will strip them of their power and their ability to control us though the tax system. Their opposition to the FAIRtax will be fierce and unrelenting. And don’t think for an instant that they won’t use half-truths, deception and downright lies in their desperate attempt to hang on to their power.
However, with the support of this President, we can finally eliminate the income tax and the IRS!!!
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 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.
If you have contacts that will allow us to get more information to President Trump about the FAIRtax please let us know.
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
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.