The Chairman’s Report September 22nd, 2023

  • by:
  • Source: FAIRtax
  • 09/22/2023

Only the rest of us pay - the law doesn't apply to the connected people


Theodore Roosevelt wrote, No man is above the law and no man is below it: nor do we ask any man's permission when we ask him to obey it.

We all know that society works best when the laws are appropriate and followed by its citizens.

Few, if any, agree that everyone is treated equally by U.S. laws.  We know that the wealthy and well-connected members of our society are treated differently than the rest of us—in many cases.

This is particularly true with respect to the income/payroll tax system.  It is common knowledge that Congress sells income tax benefits to any group willing to donate enough money.  However, these purchased benefits are enacted into law and, except for the obvious unfairness to the rest of us, people who accept these benefits are following the law.

This is why it is disturbing to read Richard Rubin’s article in the August 27, 2023 Wall Street Journal about a group of lawmakers, IRS officials and state governments that are encouraging certain of us to ignore the state and local tax limit (SALT) of the tax reform law passed by Congress in 2017.

Only 11.5% of federal income tax filers who itemize their returns are affected by the SALT rules.  The other 88.5% of federal income tax filers use the standard deduction--$13,850 for a single taxpayer and $27,700 for a married taxpayer.

Prior to 2018, taxpayers who itemized their deductions who paid $30,000 in state income property tax (SALT) could itemize their deductions on their federal income tax return and reduce their taxable income by $30,000.  If they were paying an effective income tax rate of 25%, this meant that they saved $7,500 in federal income taxes.

Starting for 2018 tax years, the SALT deduction is limited to $10,000.  The person who saved $7,500 in federal income taxes in 2017 can only save 25% of $10,000 or $2,500 in federal income taxes.  The person paid an additional $5,000 in federal income taxes.

Because the SALT limit mostly affected the wealthier citizens who often live in states with higher state income taxes and higher property tax rates, this created complaints from the states and from the affected wealthy taxpayers and many states created “work-arounds.”

Mr. Rubin’s article points out:
  • Many business owners can easily dodge the $10,000 cap on state and local tax deductions, and that costs the federal government as much as $20 billion a year, according to a new estimate by the Tax Policy Center. 
  • The state-based workarounds apply only to business owners who report profits on their individual tax returns. That means they can escape the SALT cap, while wage earners, sole proprietors and property owners can’t. 
  • Entities such as partnerships and S corporations enable closely held businesses to be organized without being taxed directly. Instead, they pass their profits through to their owners, who report that income on their individual tax returns. 
  • To implement the workarounds, states create elective taxes on those pass-through entities. The business chooses to pay that levy before passing profit through to its owners. That entity-level tax counts as the owners’ state tax payment, and it effectively lowers the income the owners report to the federal government. 
  • The upshot: The state gets its tax revenue. The business owner effectively gets a full deduction for state taxes and perhaps other tax advantages from having a lower adjusted gross income. The federal government doesn’t get all the money lawmakers expected when they capped the SALT deduction. 
  • A Treasury Department notice issued just after the 2020 election said this was legal.
  • That notice said the Treasury Department would issue regulations with more details. The Biden administration, however, hasn’t issued regulations, rescinded the notice or expressed a policy view on the workarounds.

Here you have a federal law, the SALT limitation, that is evaded by many wealthy taxpayers.  It flouts a federal law and has the willful cooperation of the IRS.

A salaried taxpayer who pays $30,000 in state and local taxes and is limited to a $10,000 deduction of his taxable income.  His neighbor also pays $30,000 in state and local taxes but, through his company, is able to lower his federal income by $30,000.  

This is plainly unfair but perfectly allowable under the income/payroll tax law.
The only reason to have the complex income/payroll tax system is for D.C. to control how much of our incomes we get to keep and to provide politicians an ATM machine to finance their campaigns.  

Why would D.C. give up this almost unlimited source of donations?  The only way that they will is if the rest of us demand it!

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?
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.

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.
If Members think that the FAIRtax needs to be changed, then they can propose the change.  Don’t let them reject the entire bill because it has a “flaw” that can be easily addressed.  

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!
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.”
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!

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