Press Release: January 4
Today, on the first day of the 109th Congress, Congressman John Linder (R-GA) reintroduced his personal consumption tax proposal, H.R. 25, also known as the “FairTax.”
“The time is ripe for fundamental tax reform and a completely new Federal tax regime,” Linder said. “I am pleased to reintroduce my FairTax proposal today, and look forward to the Congress creating a fairer, simpler tax system that advances our core goals of lower taxes and more freedom for our citizens.”
The FairTax, which Congressman Linder sponsored in the last Congress, would shift the federal government’s method of revenue collection from income-based taxes to a personal consumption tax. The FairTax would repeal all federal personal… more
This is the most kickass legislation IMO. The simplest way I can describe it is–right now, when we purchase things, there are all kinds of taxes built in to the cost of goods and services. The fairtax would strip that away; (so you can see the REAL cost of goods and services without the tax) there would be a retail sales tax on things we buy, and people at certain income levels (below a certain point) would get a rebate, which means they’d be paying less tax than the rest of us. This is the most fair legislation I’ve ever heard of, and it’s scaring the heck out of the libs who want to strangle and suffocate us with more and more legislation and bureacracy.
What is the FairTax?
The FairTax is a non-partisan proposal (HR 25/S 1493) that abolishes all federal income taxes, including personal, estate, gift, capital gains, alternative minimum, corporate, Social Security, other payroll, and self-employment taxes, and replaces them all with one simple, visible, federal retail sales tax. The FairTax dramatically changes the basis for taxation by eliminating the root of the problem: Taxing income. The FairTax taxes us only on what we choose to spend, not on what we earn. It does not raise any more or less revenue; it is designed to be revenue neutral. The FairTax is a fair, efficient, and intelligent solution to the frustration and inequity of our current tax system.
I think the best thing about the Fairtax is–it would force government to be more efficient and less wasteful, and we’d actually see 100% of what we earn when we get paid!!! Plus, we’d actually be able to SEE what we’re spending in taxes, no more “cloaking”. What an unbelievable concept! Being that originally, taxes weren’t mandatory in our forefather’s vision for the country, I think they’d be smiling on us if we pass this brilliant piece of legislation. It totally fits into the theory of less government=more freedom for you and me. Limited government, is the best government, I always say.
Another great thing about it is–we would be rewarded for SAVING money rather then SPENDING it. Check out more on the Fairtax, it’s a brilliant plan.
Here’s their website: fairtax.org
More links & info at their website
Here are a few details of how it works (you can see more here at their FAQs page):
What about the home mortgage deduction? The FairTax has positive effects on residential real estate far beyond this narrow question.
Today’s homeowners, if they itemize (and 70% do not), pay their interest with post-Social Security/pre-income tax dollars. They then pay their principal with post-SS/post-income tax dollars. Those who do not itemize get no advantages at all. Under the FairTax, all homeowners make their entire house payment with pre-tax dollars.
With the FairTax, mortgage interest rates fall by about 25 percent (about 1.75 points) as bank overhead falls; this is a huge savings for consumers. For example, on a $150,000, thirty-year home mortgage at an interest rate of 7.00 percent, the monthly mortgage payment would be $999.12. On that same mortgage at a 5.25 percent interest rate, the monthly payment would be $830.01. Over 30 years, the 1.75-percent decrease in interest rates in this instance would result in a $60,879 cost savings to the consumer.
Finally, first-time buyers save for that down payment much faster, as savings are not taxed.
Under the FairTax, home ownership is a possibility for many who have never had that option under the income tax system. Lower interest rates, the repeal of the income tax, the repeal of all payroll taxes, and the rebate mean that people have more money to spend, and have an increased opportunity to become home owners.
What will happen to charitable giving? Charitable contributions depend on one factor more than any other: The health of the economy (not tax benefits). As a wide range of economists agree on the economic expansion the FairTax delivers, charitable contributions benefit also.
For all of the money that pours into churches every Sunday and into a broad range of charities every day, only the 30 percent who itemize get any tax benefit. The other 70 percent have given and keep giving with no tax benefit whatsoever.
The FairTax allows people to make charitable contributions out of pre-tax dollars. Thus those generally less affluent taxpayers who do not itemize see their cost of charitable giving go down under the FairTax.
Write your congressman here and ask him to cosponsor the fairtax. (Fairtax.org has sample letters if you’re at a loss for words click here.)
Finally, the wealthy make decisions on charitable giving based on the cause. Once they have determined the cause is worthy, their contribution is structured to maximize the gift and minimize the tax. But the intention to give comes first; taxes simply determine the structure – rarely the amount – of the gift.
NOTE: In accordance with Title 17 U.S.C. section 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.
[...] There are several posts at Cao’s blog about the Fairtax. Click here, here, here and here for background. Here’s my question, The NRST is reality. I [...]
Title, we don’t need no stinking title
Today’s Dose of NIF
Ah taxes and more legislation designed to make them fair! Come on!
Fair Tax
Bottom line, the fair tax completely restructures the tax system. Instead of unfairly punishing those who work hard and produce, it changes the tax load to those who spend. Under the current system, I often end up spending money in order to avoid tax…
Problems with this method.
First, It makes it much more burdensome one the lower wage earners. Not only is it a regressive tax, but a rebate? They have to keep receipts of everything they buy in order to get reimbursed once a month. And how long does it take for it to go through a bureaucracy to get reimbursed. Another month? Do we issue them “I’m a poor SOB cards” so they don’t have to pay it at the register? That seems rather unfair in itself. It only makes it more complicated, not less.
Second, it shifts the tax burden to the middle class who have to spend more of a percentage of income on goods.
Third, it reduces consumer spending, thus slowing the economy.
Fourth, this notion of “it is the people who work hard benefit” is nonsense. I make a pretty good living. But I know that there are a lot of Americans out there making minimum wage who work a lot harder than I do. So, lets dispense with the notion that Americans who don’t make as much don’t work as hard.
Fifth, it is very difficult to police this. The is much more room for tax evasion as seen with state sales tax. Decentralizing the tax scheme will only lead to more fraud.
Sixth, it does nothing to hold the government more accountable. We know how much they spend now and on what they spend it. A sales tax won’t change government waste.
Seventh, it eliminates the tax advantages for investment in Municipal Bonds. Municipalities would never be able to compete, thus drying up investment in our local infrastructure OR, you end up paying more in tax dollars to pay higher interest rates.
Eighth, you have greatly overestimated the drop in overhead to banks in regards to mortgages. If any, it would be no where near 25%. Most mortgage companies operate on a very narrow margin and low overhead, and they only pay corporate tax on the net profits. And since companies operate with a consumption base as a gross income write off, this would eat up any additional saving.
Ninth, no estate tax? yeah, because Bill Gate’s great grandchildren will have worked really hard for those billions that get passed down.
There are many more reasons, but that is just a few why the “fair tax” is a recipe for disaster.
It’s apparent that you haven’t read it about it, studied it, or looked at the numbers generated by their teams of economists. No surprise here, though.
First, it does not place an unfair burden on the poor; the current system does that. Poor people would pay no net FairTax at all up to the poverty level! Every household would get a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level will pay a tax of only 11.5 percent – a rate much lower than the income and payroll tax burden they bear today.
Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. The FairTax dramatically improves economic growth and wage rates. Retaining the present tax system makes economic progress needlessly slow, thus harming low-income people the most.
In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower income families and individuals. In addition to receiving the monthly FairTax rebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more hidden taxes on goods (averaging 22 percent) or services (averaging 25 percent), and used goods (like those bought at flea markets or the thrift store) are tax-free.
Second, it doesn’t shift anything to the middle class–it shifts taxes to people who spend, plain and simple. Is that the middle class? I don’t know, I suppose it depends on how you look at it.
Is it fair for rich people to get the exact same FairTax rebate from the federal government as the poorest person in America? Let’s look at a billionaire under the FairTax – if he spends $10,000,000 dollars he pays a tax of $2,300,000 and gets a rebate of $4,283 (assuming he is married and has no children). His effective tax rate is 22.96 percent.
Now, let’s look at a middle-income married couple, under the FairTax, with no children – if they spend $40,000, they pay $4,917 net of their rebate for an effective tax rate of 12.3 percent. The effective tax rate increases as spending increases, but never exceeds 23 percent!
In contrast, this same couple, if they earn $40,000 in wages today under the income tax, pays $3,060 in payroll taxes and $2,945 in income taxes for a total of $6,005 in taxes (15.0 percent). In addition, their employer pays another $3,060 in payroll taxes. Most economists agree that the employer payroll tax is actually borne by employees in the form of lower wages. Looked at this way, this couple is paying $9,065 (22.6 percent) in taxes today, which doesn’t even include the hidden taxes they pay every time they make a purchase. Therefore, a middle-income married couple with no children has an effective FairTax rate of 12.3 percent, compared to their effective income tax rate of 22.6 percent!
Finally, let’s look at a low-income couple under the FairTax – they pay no net FairTax at all. Today, under the income tax system, they not only pay 15 percent in payroll taxes, but they also pay hidden taxes – arising from corporate taxes, private sector compliance costs, and payroll taxes passed on to consumers and embedded in the price of everything they buy, from goods (averaging 22 percent) to services (averaging 25 percent).
Third, if you have more money in your pocket, I’m not sure how this slows the economy. You’d have to prove what you mean on that score. With the penalty for working harder and producing more removed, Americans are free to keep every dollar they earn, and a new era of economic growth and job creation is unleashed. Hidden taxes are history, Americans are able to save more, and businesses invest more. Capital formation, the real source of job creation and innovation, is facilitated. Gross domestic product (GDP) increases by an estimated 10.5 percent in the first year alone. The FairTax as proposed raises the economy’s capital stock by 42 percent, its labor supply by four percent, its output by 12 percent, and its real wage rate by eight percent.
Small businesses thrive in a healthy, growing economy but because of inadequate capitalization and lack of access to sufficient bank credit, they have much more difficulty in a stagnant or shrinking economy. The FairTax would cause the economy to grow and become much more dynamic. In a recent paper, Dale Jorgenson of Harvard University states that, “the revenue neutral substitution of the FairTax for existing taxes would have an immediate and powerful impact on the level of economic activity. GDP would increase by almost 10.5 percent in the first year.” [1]Laurence Kotlikoff of Boston University found that implementation of the proposed tax reform plan “raises the economy’s capital stock by 42 percent, its labor supply by 4 percent, its output by 12 percent, and its real wage rate by 8 percent. It also lowers real interest rates by more than one quarter.” [2]
Fourth, this notion of “it is the people who work hard benefit” is nonsense. I make a pretty good living. But I know that there are a lot of Americans out there making minimum wage who work a lot harder than I do. So, lets dispense with the notion that Americans who don’t make as much don’t work as hard. I already addressed this, above.
Fifth, “it is very difficult to police this.” It’ll be simple to police this. Retail businesses collect the tax from the consumer, just as state sales tax systems already do in 45 states; the FairTax will simply be an additional line on the current sales tax reporting form. Retailers simply collect the tax and send it to the state taxing authority. All businesses serving as collection agents will receive a fee for collection, and the states will also receive a collection fee. The tax revenues from the states will then be sent to the U.S. Treasury.
You think we’re not spending millions of dollars trying to police the ridiculous hundreds of pages of the current code? It is estimated that Americans spend at least $250 billion a year to comply with the tax code – that’s $850 for every man, woman, and child in America. That is the cost of three Iraq wars. Billions of dollars in compliance costs are wasted each year, and we have nothing of value to show for this expenditure – not one single productive service or product is added to our nation’s wealth. It is estimated that the FairTax dramatically cuts such compliance costs, perhaps as much as 95 percent. So in response to that statement I’d like to see some statistics instead of rhetoric saying it’s “hard to police”.
Sixth, it does nothing to hold the government more accountable. Oh I think it does quite a bit to make government more accountable; not only that, it takes the government’s grip off of our income. Real reform requires abolishing the income tax and returning to the system our Founders intended, funding the federal government with tariffs, duties, and excise taxes – sales taxes – not with the privacy-destroying income tax. We should return to the original, constitutional tax system of the United States of America. Our Founders frequently quoted a principle from Blackstone’s commentaries on the laws of England: “A power over a man’s resources is a power over his will.” To control the resource base of a decision-maker is to control his decision. But the ultimate decision-maker in American life and politics must be the people. And the people cannot be free without a resource base of material comfort and sustenance free from government domination or control. A tax system putting government in control of the people’s income irresistibly tends to put government in control of political decisions as well. The Founders sought to avoid this path to tyranny. So they made a direct tax on the income of individuals unconstitutional. [3] With the cost of government graphically demonstrated in our faces every time we buy something this will induce citizens to keep the pressure on to make Uncle Sam become – dare I say it? – “frugal” & make it difficult for Congress to raise the rate.
Seventh, investors prosper greatly under this plan, since corporations face lower operating costs and individuals have more money to save and invest. The reform significantly enhances the retirement savings and/or retirement spending power of most Americans.
Eighth, I’d like to see how you came up with those figures. The Fairtax people have hired on a knowledgeable group to research this.
Dr. Dale Jorgenson — Chairman of the Economics Department, Harvard University
Joseph Kahn — Decision and Ethics Department, Stanford University
Larry Kotlikoff — Boston University
George Zodrow — Chairman of the Economics Department, Rice University
Jim Poterba — MIT
Steve Moore — The Cato Institute
Bill Beach — The Heritage Foundation
David Burton and Dan Mastromarco — The Argus Group
So I’d like to know how your research compares and where you get those numbers.
Ninth,no estate tax? yeah, because Bill Gate’s great grandchildren will have worked really hard for those billions that get passed down. Under the FairTax plan, the estate and gift tax will be repealed. The need for small businesses and farmers to engage in expensive estate planning involving attorneys, complex estate freeze transactions and expensive life insurance plans in anticipation of future estate and gift tax liability would disappear. Heirs would no longer need to sell the business or farm out of the family or borrow heavily, putting the business at risk, to pay the estate tax. Are you aware of how many old farming families have lost their farms because of the current estate tax code?
Each year, many small businesses and farms must be sold out of the family to pay estate and gift taxes when the founding generation dies. After a lifetime of hard work and risk-taking, the estate and gift tax deprive the small business owner or family farmer of the right to pass his or her life’s work on from father and mother to son or daughter. The estate tax punishes those that save and work hard to build an enterprise. In contrast, those that deplete their estate by heavy spending in their retirement years pay little or no estate tax.
Yes, the FairTax is fair, and in fact, much fairer than the income tax. Wealthy people spend more money than other individuals. They buy expensive cars, big houses, and yachts. They buy filet mignon instead of hamburger, fine wine instead of beer, designer dresses and expensive jewelry. The FairTax taxes them on these purchases. If, however, they use their money to build job-creating factories, finance research and development to create new products, or fund charitable activities (all of which help improve the standard of living of others), then those activities are not taxed.
Alexander Hamilton outlined the consumption tax in Federalist 21. He said: “It is a single advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. ” There are many more reasons it’s a recipe for a new fresh and wonderful economic page in our history; new economic growth, more jobs, and a system where we can actually see what we’re spending in tax–and we’ll be free from all the bureacratic red tape.
[1] Dale W. Jorgenson, “The Economic Impact of the National Retail Sales Tax,” unpublished report to Americans for FairTaxation, November 25, 1996.
[2] Laurence J. Kotlikoff, “Replacing the U.S. Federal Tax System with a Retail Sales Tax – Macroeconomic and Distributional Impacts,” unpublished report to Americans for Fair Taxation, December 1996.
[3] The end of income tax, the return of economic liberty, Alan Keyes
General references:
fairtax.org
-links and resources
-research papers
Renew America
The Federalist papers, Federalist #21
NOTE: In accordance with Title 17 U.S.C. section 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.
Hi all.
Personally, I like the fair tax. There will always be anecdotal evidence to lambaste the idea, but the way I see it, scenarios can always be created to paint a black picture. For example, food could be exempted (thus lightening the load on poorer folk and while its easy to talk about Bill Gates, there are many others who have to sell personal property because they can’t afford the taxes to keep an appreciating asset- something that can be passed down as well. There are other allowances that can be made as well.
The fair tax doesn’t have to be instituted all at once, but it does seen to be equitable.
Great post. The problem is that so few people have heard of the FairTax as a replacement. This is an important post.
State taxes would remain, it’s not a replacement for ALL tax. Just federal. (Somebody correct me if I’m wrong here, but that’s what I gather.)
Oh, and one other thing–Replacing the income tax with the FairTax will stop the income tax to make foreign-produced goods more competitive than our own. This is a big plus as far as I’m concerned. Probably one of the biggest! It will, in fact, make American products 20% to 30% more competitive, both at home and abroad. What a break for U.S. producers and consumers! Getting rid of the income tax will dramatically lower production costs in this country. And competition will ensure that these cost savings will flow not only to the pockets of American manufacturers who will be able to create more and better-paying jobs, but also to the pockets of American consumers who will be able to buy more, save more, and invest more. All around, that’s a pretty good deal; and a lot better than the wasteful system we have right now which doesn’t help us at all in this area.
NOTE: In accordance with Title 17 U.S.C. section 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.
Taking them in order:
1. Right, we don’t need a title.
2. This legislation rescinds thousands of pages of tax laws & the entire tax code. It is a tremendous net reduction in the tax laws on the books. It “kills” the IRS, reducing it to auditing the collection of the NRST by the States. The NRST will be paid by everyone, whereas today one out of four evades the Income Tax. Most people think getting “tax cheats,” criminals & illegal aliens to pay their share is “fair.” It provides incentive both to earn more rather than devote time to finding ways to avoid taxes, & to save rather than to spend.
3. That’s right, Cao.
4. The Fair Tax is much LESS burdensome on lower wage earners. Today, we think someone at the minimum wage ($11,000 per year) is given a “free ride,” because no Income Tax is withheld from his paycheck, even though 6.2% is withheld for Social Security & 1.45% for Medicare. But when that $11,000 is spent – mostly for necessities – the federal taxes (corporate Income Tax, Social Security “contributions,” excise taxes, etc., plus associated “compliance costs”) built into those products averages 26%, or about $2,900. In reality, that “low wage earner” pays about 40% of his income ($4,430 = $2,900 + $1,240 S.S. + $290 Medicare) to Uncle Sam. Under the Fair Tax, nothing will be withheld from his pay & he will receive a monthly “prebate” check – based on his income, not on receipts & not a “poor SOB card” – for the amount of tax on the spending of his entire income. Not only will he no longer pay that $4,430 but, if he buys used goods, e.g., clothes, furniture, etc., he will have part of his “prebate” left over. Only when his income rises to almost $19,000 will he start to pay ANY federal tax at all, & then only if he buys nothing used.
If you are concerned that the Fair Tax might not be “progressive,” i.e., that it would be hard on low & middle income people, check out the “pdf” file at: http://www.fairtax.org/pdfs/How%20the%20FairTax%20affects%20differing%20income%20levels.pdf It provides comparisons – Income Tax vs. Fair Tax – for six “typical” families, ranging from a single parent with two kids & a $10,712 annual income to a married couple with two kids & no mortgage, living on $100,000 annual income. You will see that they all come out ahead under the Fair Tax.
The point, about people working hard being able to keep their earnings, is that the incentives will change. Instead of having an incentive to spend, there will be an incentive to earn & to save. There will be no tax returns to file, so we can save the 6 billion man-hours per year we now devote to our 1040s, & we won’t have to spend $225 billion on tax consultants. Many high earners don’t invest extra time or effort to earn more, because the Income Tax penalizes them so severely. They gain more by working on ways to evade the tax. The system is so complicated & there are so many “loopholes,” that time spent that way is more productive for them today. Under the Fair Tax, it won’t be.
A sales tax is FAR EASIER to police than the Income Tax. The IRS will be reduced to auditing the States’ audits of sales tax collections by retailers. It is easy for auditors to find out how much product a retailer bought, & retailers, to protect themselves, keep transaction by transaction records of their sales & how much sales tax they collect. The sales tax system is about the most efficient & has the least fraud of any, & FAR LESS than the Income Tax, which is among the worst. Remember, 25% of those who incur Income Taxes never pay them, just for ”starters.” Today, the country – individuals & companies – spend more than $700 billion per year on CPAs & tax attorneys to consult on tax returns & deal with the IRS. And the taxpayers pay billions for the IRS to audit millions of returns & deal with our “tax consultants.”
By being visible, obvious & transparent, it will constantly remind us what Uncle Sam is costing us, which will cause citizens to keep the pressure on Congress. For the first time in 70 or 80 years, the government in Washington WILL BE accountable. The attitude will no longer be, “A billion here & a billion there, & pretty soon it adds up to some real money.”
Since paychecks will grow by “half” & people will have more incentive to save & invest (funds used will be untaxed & will grow untaxed), there will be MORE savings & investment, which will keep interest rates modest. Municipal bonds will still be able to compete, the way they do today. Not many years ago, municipal bonds had to pay 15% interest in order to sell. One of the major “pluses” for municipal bonds is the “full faith & integrity” of the municipal corporation, with its ability to levy taxes to meet its obligations. That will not diminish. Congress will be addressing how best to “translate” the current exemptions & deductions. Modest interest rates will reduce costs for government bodies. Employers of all kinds, including government at all levels, will benefit from the elimination of the corporate “contributions” to Social Security & Medicare. Any municipal corporation, such as a school system, which spends most of its budget on salaries, will benefit from that 7.65% reduction it its salary & wage costs.
The 25% figure for Uncle Sam’s burden on corporations is a combination of the 22% Income Tax, Social Security & Medicare “contributions,” etc., etc., which is all part of any corporation’s “overhead,” or cost of operating. Corporations don’t pay those taxes; they can only pass them on to their customers. All those expenses, including salaries, taxes, utilities, insurance, etc., are there whether the business has a high or a low margin. The margin is influenced most by the rate of turnover, the business’s intensity of capital utilization & depreciation schedules. All businesses will benefit from the elimination of the Income Tax, Social Security & Medicare “contributions,” & all the associated “compliance costs.”
As inflation has made enormous fortunes small, the estate tax has become a concern for people of modest means. The point is that your money should remain your money. (Have you noticed that, the phrase, “the IRS” spells “theirs”?) If you die, you should be able to leave your estate to your family, because it is yours. Taxes are supposed to be associated with expenses the government incurs, e.g., a tax on elevators, to cover the cost of inspecting them.
By increasing take home pay by “half,” the Fair Tax will increase sales, production & employment. Elimination of those corporate taxes is a tremendous benefit for our exports, since most other countries waive their taxes on their exports. The Fair Tax will turn that around, eliminating the “outsourcing” of production lines & jobs & reversing the balance of payments. The economy is projected to double in less than 15 years, which should generate enough additional revenue to properly fund Social Security and permit us to begin paying on the National Debt.
5. Cao-Right on! Good job!
6. The “prebate” reimburses people for the taxes paid on “necessities.” Under the Fair Tax, poor people will be MUCH better off. The best way to institute the Fair Tax is to repeal the 16th Amendment, which “legalized” the Income Tax. That will be the only thing that will make it almost impossible for Congress to reinstitute the Income Tax, in addition to the NRST. Unfortunately, because they have different routes in the legislative process, H.R. 25, i.e., the Fair Tax, & passing a bill calling for a 28th Amendment (repealing the 16th Amendment) have to be separate bills.
7. Absolutely right, Cao.
8. Yes, this is a federal bill, starting – because it is a “tax bill” – in the House of Representatives. It will not affect State sales taxes, although the States will collect it, along with their sales taxes. Insofar as the retailer is concerned, all that will change in the percentage he collects. Agreed, the benefits for our export businesses will be tremendous!
Et cetera.
[...] the Fair Tax-Fair For Everyone! John Kerry and The Fair Tax Linder Reintroduces the Fairtax wide awake to the Fairtax HR25 [...]