FairTax: The Facts In their book, Boortz and Linder laid out many facts; however, the structure of the FairTax itself left it open to demagoguery by its opponents. In hopes to do our part in educating the public about the reality of the FairTax if enacted, we will present you with many of the facts discussed in the book, provide updates of those facts where available, as well as present other facts not included in the book. |
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FairTax Facts:
Cost of Compliance - Under our current tax system, the cost of compliance is simply incredible, and not in a good way. Estimates are in the range of hundreds of billions of dollars and billions of man hours. On the monetary side, this means a considerable percentage of the tax revenue taken in is being used just to comply with the tax code! This is completely inefficient, and there is a better way. On the human side of the equation, billions of man hours means literally thousands of lifetimes of work go into complying with the tax code every year. Imagine what could be accomplished if the greatest resource in our country, the American Worker, could be put to better use. Once again, there is a better way, and that way is The FairTax.
The FairTax Prebate -
The FairTax Prebate would be received by every American citizen every month, regardless of income level, thus it is not a Government handout. The Prebate is a mechanism that would ensure no American pays taxes on the necessities of life, such as food, clothing and shelter. Instead of just not taxing these items, though, the Prebate was designed to prevent the abuse not taxing certain items would enable. Unlike our system today, it is a forward-thinking measure, and unlike proponent arguments, the Prebate is a measure that would once and for all untax the poor. The rich would then get to decide what their "fair share" is by the level of their retail purchases, but this is just too much for power-hungry politicians to understand. Luckily, we do not need them to understand it because it is from the grassroots level that The FairTax is coming, and it cannot be stopped.
Money Working Off-Shore -
There are currently trillions of American dollars working offshore to escape our confiscatory tax system. As the tax laws are currently written, if that money is brought back, it will be taxed. The current administration has even made a point to go after this money, working with other Governments to tax it anyway! The money belongs to both companies and individuals, and they are keeping it out of our system for good reason; to keep what is theirs... But soon, they won't be able to succeed in this either. In February 2009, Congress passed a $787 billion stimulus package. What has it since stimulated? Now, imagine if trillions of dollars came back to our shores, and it did not need to be printed or borrowed! Needless to say, things would be very different than they currently are, and we would have The FairTax to thank.
Embedded Taxes -
Embedded taxes are those that comprise a portion of the price we pay for products and services. You don't really think companies pay taxes do you? No, they pass them on to the consumer in the form of higher prices, and this is something that affects us every single day. Over $20 million of research puts this figure at 22%. It varies across industries (some being lower, others higher), but this figure is the basis of The FairTax, which would be 23%. You may not be a math or business person, but follow me for just a moment... If companies do not have to pay the multiple federal taxes that they are currently mandated to pay (most notably, Payroll and Income Taxes), the overall price level would be forced to decrease by 22% (original price level - embedded taxes = lower price level). A company could not afford to keep their prices at the higher level because competition would quickly run them out of business. Competition forcing prices to find a new equilibrium is the beauty of the free market system. The FairTax would then be applied, thus the overall price level would remain virtually the same (as explained above, this would vary by industry). The difference now, however, is you, me, WE would receive every dime of our paychecks to spend on products and services at a virtually unchanged price level, giving us more purchasing power than ever. Additionally, we could vote on the funding of Government with our wallets, giving us more political power than ever, and that is the Number #1 Reason The FairTax is opposed by our elected "leaders."
The FairTax Rate -
Initially, The FairTax rate would be 23%; however, fact-substantiated estimates suggest that, because of economic growth that could be spurred by implementation of The FairTax, thus an increasing tax base and more consumer spending at the retail level, the rate could be decreased over time and still provide revenue neutrality. The initial rate would be set by Congress upon implementation, though, so as written in November 9th's Fact of the Week, it would be our job as citizens to hold politicians in check. As the income tax system has been abused, so could The FairTax. Inherently, anything related to Government could suffer this fate, so be aware.
Political Vigilance -
This week, our fact is in response to an email received that read: "My concern is that if implemented at a rate that will support our government, there would be no controls that would prohibit the congress from raising the rate to pay for more entitlement programs. I acknowledge that something must be done to regain control of our out of control government. However it could make it worse"
Ultimately, politicians at the national level can change the FairTax rate as they see fit. This is the same as it is now; however, unlike now, if the FairTax rate is increased, it must be increased for everyone. Today, there are brackets, deductions and dozens of other tax-based tools, and each of these are tinkered with for political ends. If politicians vote to increase the FairTax rate, they will be raising it on the poor and the rich alike, and it will be in broad daylight. The threat of extreme outrage should be enough to keep politicians in line, but ultimately, it is up to us to boot politicians out of office if we feel we are being taxed to heavily. This is the way it should be now, but because of withholding, "tax-home pay" and other devices, most people do not know how much they are actually being taxed. The Revolutionary War was started over a tax which equates to about 3% today. The poorest among us are taxed at a rate of 7.65% (FICA - SS: 6.2% MC: 1.45) while the richest experience 50-60% levels, and higher depending on the state. Where is the outrage?
#2 in the World -
The United States of America has the second highest combined (State and Federal) corporate tax rate in the industrialized world, at 39.1%. Only Japan is higher, with a rate of 39.5%. Compare this to the average of 26.5% among other industrialized nations. Is there any wonder why American jobs are being sent to other countries? In a world with technology that has decreased the size of the globe, businesses can operate anywhere, and they do. The countries with the most advantageous systems will get the jobs, so with every day that passes, American Industry will become more and more fragmented as increasing portions of it are moved overseas in order to reap the tax benefits of employing other countries' citizens...
Withholding -
When the income tax system was born, via ratification of the 16th Amendment to the Constitution of the United States in 1913, federal tax withholding was put into place and administered just as it is today. This caused an outrage with the public, however, and in 1917, withholding became a barred practice. It's amazing what voicing an opinion to the political class can do... Politicians did not give up on withholding, however, and under the guise of asking Americans to be patriotic during World War II, the Current Tax Payment Act of 1943 was signed into law, forever changing the history of the United States. Think about the institution of withholding for just a moment... When withholding did not exist, taxpayers had to compute their tax liability annually and send in a lump sum payment to the Federal Government. Could you imagine doing this now? Would you be outraged if, on April 15, you owed 10%, 15%, 25% or more of the money you made in the previous year and had to pay it all at once? Could you pay? Instead, we have withholding, where money is deducted from every paycheck, and some people are so ignorant they believe they are getting a gift from the government when they get a little bit of their own money back!
Taxation of the Past -
Prior to ratification of the 16th Amendment to the Constitution of the United States, calling for an income tax, in 1913, an earlier attempt raised funds for the Civil War. Compared to the multiple tax brackets of today, ranging from 10% to 35% on incomes of $0 and up, the bill of 1861 created two brackets; 3% for incomes between $600 and $10,000 (approximately $10,000 and $166,700 today) and 5% for incomes over $10,000. The bill also created an inheritance tax and levied new sales and excise taxes. So, how did this system fare? The Civil War ended in 1865; however, the bills enacted to fund it were not immediately repealed. It seems the cause for funding doesn't need to always exist in order to fund it... In the following years, however, pressure mounted against the income tax, and in 1872, it was eliminated.
Communist Planks #2 & #3 -
In his blueprints for a Communist society, Planks #2 and #3 of Karl Marx's Communist Manifesto call for "a heavy progressive or graduated income tax" and "abolition of all rights of inheritance." The America we know today is on that path. Arguably, Plank #2 has been accomplished, and it is getting worse every year with approximately 47% of tax filers paying no income tax and those that do pay experiencing increasingly burdensome shares. But, the 53% majority who actually pay income taxes have the money, right? In the eyes of the few (47%), they are the evil rich... Additionally, Plank #3 is well on its way. In 2010, there will be a reprieve from the Estate Tax ("Death Tax"); however, in 2011, it will return, and to its highest rate in years at 55%. This is an outrage, but please do not protest by dying in 2010. There is another way; the passage of The FairTax.
The Income Tax -
In an effort to out-maneuver Congressional Democrats, the Republicans supported the institution of an income tax only if it were to come about as a Constitutional Amendment, theorizing that ratification was an impossibility. They were wrong, and on February 12, 1913, the Sixteenth Amendment to the Constitution of the United States of America, calling for an income tax, was ratified. It is time to take back one the most costly mistakes in our country's history. We must repeal the 16th Amendment and enact The FairTax.