Fair Tax Act: Answer to Several Issues


Campaign rhetoric in this presidential debate concerning taxes is about middle class burdened more than the other classes. It is also an argument against the Fair Tax Act, which is untrue, and apparently, congressional members do not understand the consumption flat tax system being proposed. This alternate to the unfair, intrusive, and inefficient means of federal (and some state) taxation has been proposed since 1999. A system analyzed and approved by leading economists in the United States.

At the beginning of each congressional session, the Fair Tax Act was re-introduced year after year since 1999. Georgia Senator Saxby Chamberliss helped sponsor the bill in the Senate as Fair Tax Act of 2011 (S. 13) and Georgia Rep. John Linder (who co-authored a book on the subject) in the House (HR 25). Still not passed after all that time with continued bickering over the income tax system, sponsorship has been growing as voters have also began to look for constitutionally minded politicians. Senator Chamberliss is also the senator that has dispelled the Obama myth that al-Qaeda is on the run and we are winning the war against Islamic fascism. It is a grab of desperation to depict accomplishment over the past four years of the Obama team in the White House. As Front Page Magazine stated:

Bin Laden may be dead, but Al Qaeda isn’t.

The Fair Tax would repeal all taxes on individual and corporate income, payroll, self-employment, capital gains, gifts and estates and use a national personal consumption tax in its place. This requires the repeal of the 16th Amendment. What should perk up American taxpayers ears is that it would also abolish the Internal Revenue Service that would be placed by a simple, less bureaucratic, less powerful collection-audit agency of the executive branch. Passing the Fair Tax Act would mean that Americans will keep their entire paycheck and only pay federal taxes based upon consumption or purchases of goods and services. It is a win for the taxpayer AND the government.
Under the current system, based upon income tax that has progressive rates, the cost of compliance that includes audits, administration, and enforcement, totals to more than $265 billion per year. This includes the salaries of those hired to run the system that even they do not fully understand. Complication is one of the main negative sides of this draconian tax system. It is estimated that $350 billion per year in taxes is never collected, so this adds to the cost of the system. The government also spends to collect taxes that have been unpaid either inadvertently or purposefully. The system is so complex few understand it – and it constantly changes, which increases the complexity.
The other problem with the income tax system is that millions of people contribute little or nothing in taxes by the year’s end – receiving most or all of what was deducted from payroll checks during the course of the year. Those who receive “earned income credits” and/or additional child tax credits are the percentage of people who either pay no tax after deductions, and in some cases, actually receive refunds larger than what they paid in.
The Fair Tax closes loopholes that all citizens gain in different tax brackets – including the wealthy. In the income tax system, it all depends upon deductions as to what percentage of income is paid after refunds. Legal deductions can allow a person who makes $20 million per year pay less percentage of tax than a person who makes $500,000 per year. It depends upon tax credits and deductions. Remember this: when a tax system is based upon percentage, it means the more one makes the more they pay in taxes, so there is no need for a “progressive” tax rate to make things “fair”. If there are NO deductions, everyone pays the same rate except the poor income folks with the “Prebate” clause.
Another failure of the income tax system is not collecting tax on the “underground economy” – wages earned and not declared; mostly by illegal immigrants who work for cash so as not to be detected and who have not procured fraudulent identification. It is estimated that up to $1.5 trillion is lost each year. With the Fair Tax there will be an added estimate of 40 million foreign tourists who would pay taxes into the federal system through purchases made while visiting. That is not occurring with the income tax system.
The Fair Tax would be based upon a flat tax system that will only be changed by a two-thirds majority of Congress, which is the same rule applying to adding, changing, or rescinding an amendment to the US Constitution.
Laurence Kotlikoff
The thing that hurts getting more sponsors and people to realize how much better the economy, more efficient the government tax collection would be, and other factors is the proposed 23% flat tax rate. However, those people do not understand the hidden or embedded costs presently in place that calculates to just over 22% found through a study by the Beacon Hill Institute in Boston. Laurence J. Kotlikoff, a professor of economics at Boston University, worked on a number of papers and studies concerning the Fair Tax. According to the research, each product sold, like a vehicle, there are hidden embedded costs that increase the price of the product. Those costs include payroll taxes for building the vehicle and taxes on the shipment of and distribution of the product. Those hidden, embedded costs would no longer exist under the Fair Tax system. That means that a $10,000 vehicle, despite the flat Fair Tax, would cost the same under the new tax system.
Another argument against the Fair Tax is that it is a regressive tax that is claimed to be a burden on the poor or middle-income citizens. That is why there is a Prebateclause within the proposed Fair Tax Act bill. This is a way of reimbursing tax cost for necessities of life like food. The Prebate is a monthly refund on taxes paid out for those necessities. This is the same program for poor income families presently getting annual refunds under the earned income credit. However, the Prebate pays out monthly, not at the end of the year. Therefore, the rate of tax for poor and middle-class income families would be 11.5% and not 23%. That is below the 15% tax bracket they are paying out in income tax now.
I believe it would be less complicated if food were exempt of ANY taxes, like here in Wisconsin, with housing purchase tax exempt as well. Then there would be no need for a bureaucratic “Prebate” check.
It seems that the major concern of the Fair Tax among citizens is based upon little trust in the government. Passing the Fair Tax Act would mean the repeal of the 16th Amendment and opponents do not believe that all the taxes based upon income would be repealed. House Resolution 25 has a clause to prevent that from happening. During the six-year limit required for the repeal of the 16th Amendment, the collection of the repealed income tax is suspended. It is because repealing an amendment to the Constitution is not an easy task, nor should it ever be. Repealing the 16th Amendment would require three-quarters of the states’ approval.
The people who are for passing the Fair Tax Act come from all walks of life and transcend the political ideology consisting of liberals, conservatives, libertarians, and others. It is because this legislation is not about politics, it is about an American cause that would be better for taxpayers, and unbelievably, better for government making its tax collection more efficient and less costly to enforce. Another side benefit is that it puts more government power back to the People, where it belongs and how its Founders established it. It is a taxation that provides better representation – the invisible schematics being removed that is within the complicated tax system in place now. Instead of tens of thousands of pages for the tax system, there would be less than 1,000; estimated to be less than 500 pages. That is the same pages as a hardback novel.
With the increasing power and intrusion of the IRS agency of the federal government, one would think that the phones at congressional offices would be ringing off the hook to pass HR 25/S. 13. I believe it is mostly because fellow citizens do not fully understand what the Fair Tax Act would do, and that includes their representatives and senators within Congress.
The legislation was not put together overnight, hurriedly as so many laws are passed in Congress, but went through committees with leading economic experts evaluating it, as well as extensive research as described above.
During this campaign year, Mitt Romney was accused of cheating in his annual tax configuration for paying an effective tax rate (after deductions) of 10% to 13% over the course of the past five years. They did not reveal the huge percentage of his income going to charity, tax deductible – far greater a percentage than his accusers. Obama and company lied in 2008 and lied for four years.
It is not because he cheated. It is because the present tax system allows it.
This class warfare, class jealousy rhetoric will no longer be present in election campaigns once the income tax and its deductions are GONE.
It is the same for corporate taxes. The highest present rate is 25%, higher than any other nation in the world – but not ALL corporations pay that rate, and a few have paid zero. This is referred to as “corporate welfare”, and it is.
It is because of what the politicians call “incentives”. What is boils down to is favoritism. The Fair Tax will end all of that. Taxes will be paid on purchases, goods, and services. No hidden tax and equal tax rates – no IRS looking over your shoulder. Your paychecks, money YOU earned, will be yours. What you make “gross” will be what you take home, unless you have payroll deductions YOU have sanctioned.
The Fair Tax will also do away with invisibility of the present tax system – people will actually see how taxes are paid. Employers will no longer have the added cost of being an unpaid tax collector for the government; which means they will have more funds to obtain better health care packages for their employees – another big issue in this campaign for president and congress.
The Fair Tax will benefit ALL American citizens and will add a tax base that is not under the present tax system as aforementioned – tourists visiting the United States. It is a win for the People and a win for the government, and once it is established, it will help the economy, not hurt it.
No more talk of raising taxes because it will not happen. Which means there is another benefit: government will finally be forced to budget as to what comes in instead of looking for new ways to tax or raising those already in place. All those hidden taxes like those on your telephone bill will disappear – with one flat tax added. You will see how much taxes are and only have to watch how the government spends it.
That is probably why so many politicians are not jumping for the chance to change the system. Those are the politicians that need to find another job – and YOU the voter must ensure that they no longer sit in Congress. The president is always solely blamed that is mostly the responsibility of Congress to enact. We the People need accountability and efficiency in OUR government.
The Fair Tax is one way of doing so.
The other way is Congress demanding a complete audit of the Federal Reserve System and taking charge of what the Constitution holds them responsible for – our currency. [This Week: Federal Reserve was recently an attack site for terrorist]
Along with cleaning up our government, We the People need to clean up our society as well, like strengthening the family structure through family values tried and proven through ages of human history. This comes to my mind after reading an update on the self-destructionof Britney Spears. We the Parents are responsible for future adults that will decide the fate and the quality life in America. It is about time that parents take back control and raising their children responsibly, and stop letting government and others influence and/or control them. They need to be taught the basics virtues, understand and armed with knowledge of Constitution and its amendments, and realize that those virtues provide the most rewarding aspect of life. We cannot expect our government to reform if society does not reform itself with it. Those people who we elect come from the very same society. Corruption produces corruption and that spells disaster.
And that ends my soap-box moment for the day …
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