This Grassroots Corner continues a series on dealing with hostile questions and comments that people may raise about the FAIRtax. Many of these suggested responses will be good comebacks for you to have in your pocket when you need them. Some of these suggested responses can be too long to insert into an actual conversation. You may want to boil them down to where they'll be more useful when you're talking face-to-face with someone attacking the FAIRtax.
This week, we take on the criticism that, when Congress finishes making the proverbial salami, we will end up with a new sales tax on top of today's income tax.
For sure, adding the FAIRtax on top of today’s income tax would be an economic disaster. Consequently, it its opening pages, the FAIRtax bill repeals all the statutory authority currently in place for collecting the Federal income tax. It also gets rid of estate and inheritance taxes, capital gains taxes, payroll taxes and self-employment taxes. In its place, the bill establishes a 23% inclusive retail consumption tax levied on the purchase of new goods and services.
Other countries, including Germany, have an income tax and a national value-added consumption tax (“VAT”). Germany’s corporate income tax (“Körperschaftsteuer,” commonly called the “Mehrwertsteuer”), for example, is 15%. Compare that to our 21% corporate income tax (which will soon be 25 to 28 percent if the Biden Administration gets its way). In addition, states also levy taxes on corporations.
Germany also has a value-added tax of 19%, which the government rebates back to manufacturers on goods produced for export. This gives the Germans a significant advantage over American manufacturers in the world market. German goods come to market with a significantly lower embedded income tax in their prices, while the prices of American goods still contain far higher costs of our income tax system.
If we had the FAIRtax, American businesses would actually have an advantage in the German market. Our manufacturers would pay no tax on their profits, while their German competitors would still have to pay 15% on theirs. The 19% VAT would apply equally to both the German and American goods.
But if the corporate income tax should stay, our competitiveness would take an enormous hit which would get even bigger if Biden gets his new higher corporate tax rates. The FAIRtax bill in earlier Congresses did not address this problem.
Beginning with the 111th Congress for the 2009-2010 session, the FAIRtax featured a “sunset provision.” As noted earlier, the FAIRtax bill can and does repeal the existing statutory authority to collect an income tax, but it can’t touch the Constitution. Prior to 1913 when the 16th Amendment was ratified, the Supreme Court had ruled that an income tax was unconstitutional. The 16th Amendment was necessary in order to allow the Federal government to collect an income tax.
The architects of the FAIRtax realized that as long as the 16th Amendment remains in place, a future Congress could re-impose an income tax on top of the FAIRtax. To prevent that, the “sunset provision” states that if the 16th Amendment is not repealed within seven years of the effective date of the FAIRtax, the FAIRtax disappears.
If that happens, there’s nothing in the FAIRtax bill that automatically brings back the current income tax. Instead, Congress would have to come up with something to fill the revenue gap.
Congress could pass a national VAT today and leave the income tax in place. Democratic Senator Ben Cardin of Maryland has proposed such a federal sales tax, with "Prebate" (he read our stuff) coupled with an income tax on incomes above $200,000 per year.
While we don’t support Senator Cardin’s proposal, it’s encouraging to see Democrats at least start talking about a consumption tax. Democrats have previously opposed all consumption taxes, calling them regressive. Democrats who embrace Senator Cardin’s VAT will be hard pressed to reject the FAIRtax simply because it’s a consumption tax.
A Flat Tax could also lead to both an income and a consumption tax. With today's massive deficits, Congress will sooner or later pass a VAT - on top of today's taxes or a Flat Tax. With the FAIRtax, there would be no need for a VAT.
The drafters of the FAIRtax, Dan Mastromarco, and David Burton, did a good job. We look to our sponsor, Billy Carter, GA-01, to control amendments during the legislative process to ensure the sunset provision stays in place.
I would love to hear from you about how to squeeze this explanation into a soundbite.
AFFT Grassroots Coordinator & Secretary
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🇺🇸 CPAC Finally, save the dates: February 24-27, 2022 (probably), for either Orlando, Florida, or Washington, D.C. (National Harbor, Maryland). Plan to be at the CPAC (“Conservative Political Action Conference) annual convention. The FAIRtax Guys were there this year and say next year we need to turn out in numbers. You don’t need to be a conservative to attend and help the FAIRtax.