The Chairman’s Report September 30, 2022

  • by:
  • Source: FAIRtax
  • 09/29/2022

The FAIRtax and multi-generational dynasties


Today’s Chairman’s Report is written by Jade Walle.  Jade is a partner of a CPA firm and is on the board of Americans For Fair Taxation. 



As I sat and visited with one of my accounting firm’s partners at a recent conference, the conversation migrated to the FAIRtax.  He lamented how the uber wealthy’s progeny can live lavishly and their existing wealth hardly gets taxed at all.  He did not think that it was fair for “trust fund” kids to be able to live an unproductive life without something (i.e., taxation) motivating them to become productive members of society.
 

How would the FAIRtax address this justifiable concern?


Let’s examine how this imaginary prodigal child would fare with our current income tax system and the FAIRtax.  

For our example, let’s assume our young dissolute adult hit the lottery when it came to selecting parents, inheriting a $100 million fortune that earns annual capital gains of 10% (i.e., $10 million).  Our unmarried youth annually consumes $12 million, almost as fast as he can spend it, giving no thought to his future, but has been trained to contribute $4 million to charity annually.  Like many trust fund kids, he’ll eventually run out of money unless he changes his ways, but it could last the better portion of his lifetime.

The table below highlights two perspectives, the first of which is how our reckless friend’s income and spending would look and the second is how his tax paying behavior would fare under two competing tax systems:




Our friend’s annual long-term capital gains of $10 million would be taxed as follows:
$0-$41,675-  0% ($0 tax)
$41,675-$459,750-  15% ($62,711 tax)
Over $459,750-  20% ($1,908,050 tax)

Total capital gains taxes on $10 million is $1,970,761.  The 3.8% net investment tax on $9.8 million of investment earnings ($10 million less $200,000 threshold) would be $372,400.  Ample charitable contributions of $4 million create deductions of approximately $952,000, yielding total income tax of $1,391,161, a 13.91% effective tax rate on his income.  However, prodigals tend to spend more than they earn.

Under the FAIRtax, as our squanderer consumes at the rate of $12 million a year, after receiving his $3,126 FAIRtax annual prebate, he’d pay the asymptotic effective rate of 22.97% (23% FAIRtax rate reduced by the prebate), or $2,756,874.  The young reprobate would pay $1,365,713 more per year under the FAIRtax!  

The table above highlights how under the income tax system, our friend has an uncanny ability to avoid paying any taxes on employment income, Social Security, or Medicare, because he does not earn a W-2.  We all should be so lucky.  However, with the FAIRtax, as our young Arthur Bach frivolously spends at Bergdorf Goodman’s, he will pay $1,365,713 more to the federal government each year relative to the income tax.  Further, as our profligate dips into his investment corpus, capital gains and resulting income taxes will decrease significantly in future years as he foolishly spends his money, making this gulf even larger in future years. 
 
Young Arthur will now be fully paying into the Social Security and Medicare system which he would have never done his entire life under the income tax system, since the FAIRtax (Sec 101 (b) 3-4) requires the 23% FAIRtax to be apportioned 14.91% for general revenues and 8.09% to these safety net systems.  The 2007 study “A Distributional Analysis of Adopting the FairTax: A Comparison of the Current Tax System and the FairTax Plan,” highlighted that lifetime expenditures are a better measure of an individual’s well-being and true wealth than current income, resulting in the conclusion that the FAIRtax is more progressive than the income and payroll tax system.  The FAIRtax’s progressivity causes the result we see above and is the first taxation system to tax existing wealth!

As my conversation came to an end with my friend, I challenged the notion that a tax system’s job is to ensure our youth are productive members of society.  This concept is of course vitally important, but let’s place the burden of this training where it belongs, on the parents, family, friends, and church of our young prodigal.  

At least with the FAIRtax as illustrated above, the whims of our fictitious, fiendish friend will result in more taxation and receipts to our federal government, including funding our safety net programs.  This means his trust fund inheritance will dwindle much quicker under the FAIRtax, which at some point may resonate and cause him to question his unproductive lifestyle, which would have never occurred under the current income tax system.  The FAIRtax wins again!
 

WHAT CAN EACH OF US DO? 


We can write letters and make calls to our elected representatives demanding that if the government really wants to eliminate the burden of filing income tax returns, they should enact the FAIRtax and do away with tax returns altogether.

The great 18th century Irish statesman Edmund Burke made a statement that applies in many ways,
 
“Nobody made a greater mistake than he who did nothing because he could do only a little.”

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!

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

Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:

“If you want a picture of the future, imagine a boot stamping on a human face—forever.”

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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Americans for Fair Taxation® is a 501(c)(4) non-profit, non-partisan grassroots organization solely dedicated to replacing the current income tax system with a fair, simple and transparent national consumption tax – the FAIRtax® Plan. We rely entirely on contributions from concerned citizens like you who want a tax system that will generate jobs and stimulate the economy. Welcome to the FAIRtax team!

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