Editor’s note: sometimes big organizations miss solutions that are right under their noses. Recently the American Association of Retired Persons (“AARP”) called the attention of its member, Jim Stehr, to a retirement survey. The survey respondents overwhelmingly thought that American workers should be able to save for retirement from their paychecks more easily. No one had bothered to tell the AARP how the FAIRtax enables retirement savings from paychecks – until Jim Stehr came along. Here are Jim’s thoughtful and well-researched comments to the AARP:
Thank you for S. Kathi Brown’s excellent article, Saving for Retirement at Work: Views of Voters Ages 25+. Washington, DC: AARP Research, October 2021. She reported, “Virtually all voters (99.7%) say that it is important for people to be able to save money for retirement while they are working.” (Emphasis in original)
If enacted in its current form, the Fair Tax Act of 2021, HR 25, would enhance earning and saving for all purposes, including retirement. The Fair Tax (details attached) would replace all federal taxes on incomes and payrolls with one 23% retail sales tax, and a monthly rebate to all legal residents, $247 per adult, $87 per dependent, adjusted for inflation annually. The rebate un-taxes retail spending up to the federal poverty level and makes this sales tax progressive.
The average 20- to 34-year-old has a gross income of $37,000 per year. The employer pays half of Social Security (FICA, Federal Insurance Contributions Act) and Medicare payroll taxes of 7.65%, or $2,831 in addition to the employee’s salary. Therefore the average 20-34 year old employee costs his/her employer $39,831 annually.
The worker also pays $2,831 payroll taxes plus income tax of $2,755 (single, no children, standard deduction) and takes home $31,415. Under the Fair Tax, that worker will be empowered to negotiate a salary increase to $39,831 and perhaps more because employers no longer will pay the federal business income tax, the cost of hiring will decrease, demand for labor will increase and exert upward pressure on workers’ pay.
According to independent econometric analysis by David G. Tuerck, et.al., The Economic Effects of the Fair Tax: Results from the Beacon Hill Institute CGE Model, The Beacon Hill Institute at Suffolk University, February 2007 (The Fair Tax proposal has been in the House Ways and Means Committee since 1999.), “Job growth would be 12% higher in Year 1, 10% higher in Year 5 and 8% higher in Year 10.” Also, “Investment would be 75% higher in Year 1, 86% higher in Year 5 and 76% higher in Year 10 reflecting the growth due to no taxes on savings and investment income. Wages would be 10% higher in Years 1, 5 and 10.”
Predictions by Arduin, Laffer & Moore Econometrics, A Macroeconomic Analysis of the Fair Tax Proposal, June 2006, include, “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.” While the 2021 direct federal tax environment is less burdensome than in 2006-2007 (but federal debt, i.e., future tax claims is worse), the Fair Tax would facilitate significantly higher incomes, savings, and household wealth.
The AARP article stated, “Nine in ten (92%) voters agree that elected officials should support legislation that makes it easier for all workers to save for retirement from their paycheck. (Emphasis in original).” Enacting HR 25, the Fair Tax Act of 2021 in its current form will accomplish this.
“Portability, so that workers can take their accounts with them when changing jobs (99% very/somewhat important).” Under the Fair Tax, all forms of savings would be tax free. Savings could then act as unrestricted, self-directed IRAs. Savings stay with the owner’s choice of credit union, bank, or investment company, not the employer’s. With mobile banking, portability will be total.
“Available to all employees who do not have a way to save for retirement at work, including those who work for small businesses (98% very/somewhat important).” Automatic deposits are plentiful and cost little. Under the Fair Tax, workers will control their own savings only to be taxed when retail spending occurs.
“Only three in ten (29%) voters ages 25–44 believe that they will be able to save enough money for retirement. Among voters ages 45-plus who are not yet retired, eight in 10 (81%) wish they had more money saved for their retirement years.”
The Fair Tax goes a long way to solving a serious problem caused mostly by the payroll/income tax system that suppresses earnings and savings. Then why was HR 25 not brought to the floor of the House for consideration during the past 22 years? Reasons may include ignorance, cowardice, demagoguery, misinformation, and incentives for Congress to increase complexities such as multiple subsidies in the form of tax credits, deductions, and exemptions.
Retired US Representative John Linder told us that congressional aides who learn a small part of the income tax code often become well-paid lobbyists to preserve or expand that part of the code. Since January, hundreds of income tax changes have been proposed in Congress. Only the Fair Tax would greatly simplify federal taxes. It would directly tax consumption, not earnings.
The current system hurts workers, savers, and retirees. The Fair Tax empowers taxpayers. If signed into law in this year, the Fair Tax will take full effect January 1, 2023. I urge AARP to support HR 25, the Fair Tax Act of 2021 in its current form and end unnecessary mass financial stress.
Please contact me if you have questions or concerns about the Fair Tax bill.
James Stehr, AARP Member Number … .
Thank you, Jim, for sharing these remarks with us. We need more people like Jim to write to big organizations in which they are members.
Jim and his wife live in Atlantic Beach, Florida, near Jacksonville. Jim grew up in Milwaukee and attended the University of Wisconsin - Milwaukee, where he double-majored in economics and natural resource management. Jim has a masters in economics from the same institution. Jim taught science in public school from 1983 to 2015. He is now retired.
Jim was a FAIRtax-er before there was even a FAIRtax. In the early ‘80’s Jim made a presentation about replacing income taxes with a consumption tax. Little did he know what would come. About 2002 or 2003 Jim heard an advertisement for the FAIRtax on the radio. Jim was concerned about the rebate because it seemed to represent a new government program. Talk-show host Neal Boortz allayed Jim’s concerns when he characterized the FAIRtax as a “transfer of power from the central government to the individual.”
When not working on the FAIRtax or relaxing at home, Jim enjoys playing pickleball.
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