Skip to comments.New Section of HR 25
Posted on 01/16/2009 6:29:10 PM PST by phil_will1
SEC. 401. ELIMINATION OF SALES TAX IF SIXTEENTH AMENDMENT NOT REPEALED.
If the Sixteenth Amendment to the Constitution of the United States is not repealed before the end of the 7-year period beginning on the date of the enactment of this Act, then all provisions of, and amendments made by, this Act shall not apply to any use or consumption in any year beginning after December 31 of the calendar year in which or with which such period ends, except that the Sales Tax Bureau of the Department of the Treasury shall not be terminated until 6 months after such December 31.
(Excerpt) Read more at thomas.loc.gov ...
I would love to see a national sales tax rather than payroll tax. That way all the under the table money will eventually get taxed as it is spent.
Is that Georgia’s Congressman John Linder? Good for him. He’s a nice person, I met him once in my past life (when I was employed).
If your labor is a service, it gets taxed. A hair cut or cutting the lawn is a taxable service. All the consumer perceives is how much money must be forked out to acquire item X. If labor+"fair tax" is too much, the price will have to be reduced until it becomes "affordable". If the labor compensation is too low, nobody will bother. The tax rate will make the availability of labor and the cost of doing business a fairly volatile issue. When the tax is applied to labor (service), it is a flat income tax. I predict that every kind of labor will end up categorized as a "service". At that point, it would have been easier to simply go with a flat, non-progressive income tax. Further, things that weren't previously taxed (rental of a house or apartment) will add to the tax burden.
I would much rather see HR 25 state that NO sales tax can be collected until repeal of the 16h amendment is ratified. The government should not expend any money until the repeal process gets to 95%. My guess is that the repeal will never happen. The socialists feeding at the trough can't allow it.
Please remove me from the FairTax list. Thanks.
I thought one of the provisions of H.R. 25 is that if it passes, it nullifies the 16th Amendment, and abolishes the IRS.
It seems to me that by amending the bill, if the Fair Tax passes then we’ll effectively have two tax systems in place.
Please correct me if I’m wrong, and clear this up for me.
So I would imagine that the 16th should be taken care of before the Fair Tax would be enacted.
The idea is to abolish the IRS and scrap the present income tax code when enacting the HR 25 FairTax.
Leaving the 16th Amendment in place is dangerous as the income tax can be resuscitated at a later date.
What this modification of the bill HR 25 does is to say you can’t have both, you get one or the other but not both. If the nation does not repeal the 16th then this modification provides a ‘sunset’ provision to the HR 25 FairTax Act.
What the good Congressman is banking on is that people and business will be so satisfied with the simplicity and transparency of the FairTax code, that they will never allow it to ‘sunset’ and will therefore pressure Congress and the States to get rid of the 16th.
That’s the idea.
There are problems with this tactic though. I will point those out in the next post.
First I have read through HR 25 and have had several discussions with the behind-the-scenes architects of the legislation.
It is truly an inspired piece of legislation and has brilliant provisions that correct deep historical flaws in the evolution of American taxation, both pre- and post- Income tax or 1913.
And I sympathize with Congressman Linder in how difficult it is to cut the Gordian knot that the 16th Amendment uses to restrain the spirit of American entreprise.
The problem I see with this modification is that it is part of a piece of legislation that can be passed with a simple majority of Congress, and therefore any of its provisions can be amended with a simple majority of Congress. For example, this ‘sunset’ provision triggered by a failure to repeal the 16th can itself be amended out of existence by a simple majority in Congress (the provisions of HR 25 should be amendable only with a supermajority of Congress as a minimum). Another example is that the provision calling for abolition of the IRS and the present monstrosity of a tax code can likewise be amended to allow the income tax to creep back in to the code. For example, if society at some later date decides that the upper 2% of the wealthy in this country should be taxed on their income and dividends, then we will see a repeat of the events of 1913 unfolding to the present. Because in 1913 that is exactly what happened, the upper 2% of Americans were subject to the 14 page tax code of 1913 and before long the 16th Amendment gave a business license to Congress to tax and exclude whatever and whoever they fancied until the bulk of income taxes were thrust upon the middle and upper middle classes.
The last I heard (late 2007) on this enigma of the 16th was that Congressman Linder and other members were meeting with the American Legislative Exchange Council (ALEC, a bipartisan organization of state legislators) to ‘memorialize’ Congress to call for a limited Constitutional Convention, limited for the sole and exclusive purpose to repeal the 16th. Congressman Linder had correctly observed that Congress itself would likely not initiate serious effort to repeal the 16th so the other provision in the Constitution was to have the States draft the convention and force Congress to act.
The problem I suspect is that once a Constitutional Convention is called no matter how limited it can always be redrafted to expand its scope with the vote of enough states.
I would hope that someone would call Congressman Linder’s office and ask what the status is of meetings and progress with the ALEC.
I still think enacting HR 25 without repealing the 16th is dangerous to the possibility of having both tax systems simultaneously applied. Boortz mentioned that HR 25 could be ‘passed’ but not enacted until the 16th is repealed. This falls short as well.
Another possibility which seems to have been set aside for now is to provide that states be allowed to vote for either a federal income tax or a federal sales tax, but not both. In this case, if at a later date the Federal Government attempted to force an income tax onto people of a state that had voted for a federal sales tax, then there would be a certain large backlash. Furthermore, if the FairTax was successful in states, then other states could vote for it and at some point a critical mass would be in place to repeal the 16th.
Any legal opinions and economic comments to the foregoing are welcome.
when this provision wasn’t in there, it was a problem.
now that it is, it will be a problem. just wait.
The nrst is our future - even a way out of the economic mess via providing billions in capital...
Hostage, the Constitutional convention route has been picked up by Ga Insurance Commissioner John Oxendine. He has strong relationships with his counterparts in other states and will be promoting this approach and encouraging FairTax supporters to lobby their state legislators to vote at the state level for sending “memorials” to the U. S. Congress from the various states.
Your concern about the scope of any Constitutional Convention being expanded by other groups is common and legitimate. Although Constitutional scholars are not unanimous on this point, he is of the opinion that Constitutional conventions can be called for specified purposes and limited to those purposes with one caveat. The “Memorials” from the 38+ states causing the convention to be convened must be identical in every word and must contain wording such as “for the specific purpose of enacting the FairTax legislation and repealing the 16th amendment AND FOR NO OTHER”, or words to that effect.
Mr. Oxendine has stated that if at any time he finds credible evidence that his interpretation (and that of the Constitutional scholars he is relying on)is found to be incorrect, he will immediately abandon this effort. Congressman Linder and AFFT/Houston have endorsed Commissioner Oxendine’s efforts.
“I thought one of the provisions of H.R. 25 is that if it passes, it nullifies the 16th Amendment, and abolishes the IRS.”
Incorrect. A piece of federal legislation cannot repeal a Constitutional amendment; as man50d has pointed out, they are separate procedures. The bill repeals the Internal Revenue Code (or at least those sections which deal with income taxes) and eliminates the IRS.
“Repealing an amendment requires ratification of three fourths by each state legislature.”
Almost. Enacting or repealing a Constitutional amendment requires ratification by 3/4 of the states (38 right now) by a simple majority in both houses. It also requires ratification by both houses of the US Congress, and I think that is by 2/3. Interestingly enough, the President does not sign.
We can implement this, however, after the existing system completely collapses. I give that 3 years, max.
You do realize that the income tax started as a flat tax and then progressed into a Progressive tax? We don't need an income tax, the country got along just fine for over 100 years without one. A sales tax will not add anymore to the cost of an item than income taxes do. Are you so naive you think employers don't add the cost of income taxes to their product now? What is the difference between paying 30 percent income tax or paying 30 percent sales tax? None, except that you have the choice to NOT buy something whereas income taxes are inevitable. Another difference is everyone has to pay taxes with a sales tax, an income tax can be avoided by paying under the table, as happens now with illegals and many other people.
Let's get the government out of our wallets and out of our bank accounts. Also,let's repeal the stupid laws that say we can't carry our own money around with us without being arrested for being a drug dealer and having our money confiscated. Talk about unconstitutional, what a crock. Down with the income tax, down with government being able to snoop on my bank account, down with confiscation of private property under the guise of fighting crime. Up with individual freedom.
Do you think you'll actually get your full gross compensation if this passes? Promoters of the "fair tax" claim you'll get to take home your gross income while in the next breath claiming that your income tax burden is "embedded" in the cost of a product. The only way to get it "unembedded" is to force a huge pay cut. That occurs at the same time a huge sales tax is applied. You get ripped both ways. I think there is a lot of dishonestly floating under the surface of this "fair tax" effort.
Those of us with significant after tax savings get ripped for another round of taxes when this is applied.
So was the sales tax on a $1500 item I just purchased. It added another $90. If I don't have the extra $90, it stays on the shelf. There would have been an extra $345 of "fair tax" applied if it were in place right now. I would have deferred and canceled the purchase had that been the case yesterday.
If the tax rate becomes too high with a consumption tax people will respond with less purchases. Less purchases will result in Congress collecting less tax. This forces Congress to keep the tax rate within reasonable if it wants to maximize the tax collection.
What are you smoking? The leftists in Congress don't really care what they are collecting. The use tax policy to punish the successful (progressive taxes) and buy votes from the bottom end of the income scale. They spend money without any care as to whether it runs a deficit. They can always print more.
The individual will earn his or her wages free and clear of any tax with The Fair Tax as they will not have to report it as income. That will in turn eliminate the embedded taxes imposed at each stage of production. That reason alone makes the Fair Tax profoundly different from any income tax.
I call BS again. In my income range ($143K) I'm paying about $38,000 FIT and maximum social security. That comes out of my gross. Only the employer's contribution to social security (7.65% of the nominal $100K cap) is an "embedded" cost that is outside of my gross. I pay the rest. Elimination of that cost isn't going to matter squat in the bottom line pricing of corporate services. Frankly, I think there will be an attempt to slash my gross compensation rather than put that $38,000 back into my paycheck. People in the minimum wage world pay nearly zero FIT. Giving a minimum wage earner that $110 of annual FIT back matters little.
A flat tax on income still mean people will not have the freedom to choose when and how often they are taxed. It will also maintain the increasingly oppressive IRS.
You really don't have a choice about the taxation either way. You have to work to earn income to eat. If your work is a service, it is taxed. No difference between that and the current income tax. It's just "itemized" for the consumer. That same money gets taxed again when it is used to purchase something, except this time it comes out of the "principal" under your control.
The current IRS might be "abolished", but it would be replaced by a bigger organization to collect taxes from every living thing...and mail monthly checks to everyone as well. It's just a different monster.
The purpose of concurrent passage of The Fair Tax Act and repeal of the 16th amendment is to put pressure on Congress. Your scenario would give Congress critters less reason to commit to passage of The Fair Tax and more reason to delay.
The repeal of the 16th amendment is an act that requires ratification by the states. Congress can not do it on their own. Why should the socialists feel any pressure to do something they don't want to do? They are geared up to tax everything in sight. They have majorities in both houses and will control the White House on Tuesday. It's all about the leftist agenda. What's good for the country has nothing to do with what is coming down the pike.
“You really don’t have a choice about the taxation either way. You have to work to earn income to eat. If your work is a service, it is taxed. No difference between that and the current income tax.”
If your point is that you have to pay taxes somewhere in the economic cycle under this proposal (or any proposal), and that that means there is no difference, then that is your opinion and you are welcome to it. However, from an economic perspective, there are enormous differences.
The main reason that I support the FairTax is that it is the most comprehensive and effective way of dealing with a broad range of adverse economic trends which are going on right now.
1. The spiral of complexity and higher compliance costs in our current tax system,
2. the trade deficit (and the resultant erosion of our manufacturing base),
3. the federal budget deficit (including the crisis in SS & Medicare)
4. the AMT
5. The rapidly rising costs of health care
6. The declining and now negative personal savings rate
7. etc, etc
What do these trends have in common?
A. They are unsustainable,
B. They are contributed to significantly by the current dysfunctional tax system,
C. Most Americans have no idea of the seriousness of these trends nor of their connection to tax policy.
Health care costs are skyrocketing due to trial lawyers and insurance companies and unfunded mandates from the government to provide free health care to those who can't or won't pay for their services. The manner of collecting revenue has no bearing on either of those behaviors.
The declining savings rate has much to do with being taxed by the government. When you are reduced to subsistence living (paycheck to paycheck), there isn't much left to save. The progressive income tax screws the upper income category so they have less disposable income to spend in the establishments that employ the lower income people. Again, less disposable income means less opportunity to save. If the "fair tax" is actually "revenue neutral" as it claims, the amount of disposable income is theoretically identical. As for taxing the interest on savings accounts, that doesn't really add up to much money. Especially if there isn't much money left to save.
Social security is a Ponzi scheme that is destined to fail by design. The number of persons entering the game is less than those sucking benefits out of the system. That disparity will be growing. A federal sales tax is no guarantee that the problem will be solved. It still comes down to a lopsided distribution with more consumers than producers.
Going back to the single item where I agreed with you, the "fair tax" will require a huge government agency to track millions of taxpayers. Who will enforce the tax collection? Who will decide what is taxable? What agency can disburse over 300 million checks each month? How much does such an agency cost? As a tax collection model, the "fair tax" appears simple, but the shear magnitude of persons involved is going to be a problem. That involvement will need to happen daily.
Did the above consumption taxes include sales taxes on domestically produced goods and services?
You’ve got it exactly right!
The correct solution to that problem is ZERO percent corporate taxes. That would lure lots of businesses back to the U.S. It could be done with a single bill. No constitutional amendments necessary.
I fall in the 28% or 33% bracket. Do you really believe I'm going to get to keep all of that? I think you are incorrect in claiming the 15% marginal rate (or my 28% rate) is "embedded" in prices. It is taken from my gross earnings. As I said earlier, the only way that becomes "unembedded" is for my employer to slash my gross compensation. If that happens, there will be two weeks notice followed by a vacancy. I suspect most of my colleagues with similar compensation would have the same reaction. At my company, the only real "asset" is the intellectual capacity of the employees. The buildings and furniture don't earn income from the customers. It would be a really big mistake to try to slash incomes.
Your post validates the statement I made at the end of my post:
“C. Most Americans have no idea of the seriousness of these trends nor of their connection to tax policy.”
Here are my responses to the specific points that you raised.
“The ‘trade deficit’ is largely due to having more disposable income in our economy. More disposable income will result in more trade deficit.”
That statement shows a complete misunderstanding of what the trade deficit is. A trade deficit indicates that imports outweigh exports. If disposable income is rising and that increase is spent on domestically produced goods, then it does not contribute to the trade deficit; in fact, it shrinks it. Chinese disposable income has been increasing. Why doesn’t China have a growing trade deficit?
Our trade deficit is due to a combination of factors, one of which is a tax system which places US producers at a disadvantage vs their foreign competitors in an increasingly global marketplace. The US is the only one of 30 OECD countries which has no border adjustment element in its tax system and our trade deficit is larger than the other 29 combined. In fact, the other 29 have a net trade surplus. Neither China nor India are in the OECD at the present time.
“The federal budget deficit is due to leftist spending money like drunken sailors. They have no accountability or limits on their behavior. They spend money they don’t have. The manner of collecting revenue will have no impact on that misbehavior.”
There is no doubt that fiscal discipline is sorely lacking and is a major contributing factor to the budget deficit. I disagree that it is “leftists” only who are responsible; it seems to me that Republicans have been just as culpable. More to the point, however, it is also true that in the late 90’s when the US economy was growing at a relatively robust rate (4+% per year), forecasts were for budget surpluses into the future. During this decade, economic growth has been much slower and deficits have reappeared. Coindidence? Hardly. By significantly increasing the rate of economic growth during the first few years after passage, the FairTax would have a highly positive effect on the federal budget position. To ignore the rate of economic growth and its impact on the federal budget would be just as short-sighted as ignoring the need for fiscal restraint.
“Health care costs are skyrocketing due to trial lawyers and insurance companies and unfunded mandates from the government to provide free health care to those who can’t or won’t pay for their services. The manner of collecting revenue has no bearing on either of those behaviors.”
Our current tax system provides a powerful incentive for employers, rather than individuals, to provide health coverage. This causes many consumers to think of healthcare as “free”. This, in turn, leads to the fact that the US has one of the highest, if not THE highest, utilization rates in the world. This is one of the major factors in our high rates. Do you know the one area of medicine where prices have not risen faster than inflation over the last decade or two? Cosmetic surgery. I imagine that you can guess why. That isn’t to suggest that converting to the FairTax would fix the problem, just that this is one major contributing factor.
“The declining savings rate has much to do with being taxed by the government. When you are reduced to subsistence living (paycheck to paycheck), there isn’t much left to save.”
This seems to contradict your previous argument that increasing disposable incomes are responsible for the trade deficit. How are disposable incomes increasing if everyone is “living paycheck to paycheck”? Do you know what the individual savings rate is in China? It’s between 30 and 40%. Ours is between zero and -1% (as of a year or so ago). Our income levels are much, much higher than China’s by any measure. Every economic study has confirmed that savings and investment would be higher under the FairTax than under the current system.
“Social security is a Ponzi scheme that is destined to fail by design. The number of persons entering the game is less than those sucking benefits out of the system. That disparity will be growing. A federal sales tax is no guarantee that the problem will be solved. It still comes down to a lopsided distribution with more consumers than producers.”
The FairTax taxes consumption, rather than production. Therefore, if we grow our economy enough to double it in the first 15 years after passage (which has been suggested as a goal), then we double the base to draw SS & Medicare revenues from. Given the demographic bubble that we face, with fewer workers entering the workforce than retirees drawing benefits, that simply has to be part of the solution. If we maintain the current foundation of these programs on payroll taxes, the combination of benefit reductions and tax increases that it would take to save the systems are going to be draconian.
“Going back to the single item where I agreed with you, the ‘fair tax’ will require a huge government agency to track millions of taxpayers.”
Your statement shows a lack of understanding of how the FairTax operates. The government will have less incentive to “track millions of taxpayers” than they do under the current system. Individuals and families will be required to file periodically for the rebate. This is a very simple form that should literally take no more than 60 seconds to complete. Those forms will have to be data entered into a computer and checks (or wires) will have to be generated via an automated process each month. The Social Security Administration already does this on a smaller scale and I hear very few complaints from retirees about the process.
If a citizen/taxpayer does not file for the rebate (which is their choice), then no “tracking” is necessary on the part of the federal government - unlike the current system.
As I said in my original post, most Americans have no idea of the relationship between tax policy and these adverse economic trends, not do they appreciate the seriousness of these trends. Some of them have the potential, either individually or collectively, to cause an economic crisis much bigger than the one we are experiencing today. However, our recent history suggests that the American people won’t demand that their elected leaders address these problems until we are experiencing a crisis. We ignored Allen Greenspan’s warning of “irrational exuberance” (which he uttered in Dec of 96) until the collapse of the tech stocks (which occurred primarily from March 2000 to March 2001). We ignored the warnings of regulators who testified before congress of the risks posed by Fannie Mae and Freddie Mac in 2003. I would hope that we could be more pro-active and far-sighted this time.
“Did the above consumption taxes include sales taxes on domestically produced goods and services?”
Of course. They were using a broad generic term and describing a characteristic common to the entire broad category. Do you have any reason to suspect that the self-limiting feature which they were commenting on did not apply across the board to all goods within the category, including domestically produced goods and services?
“The actual cost of that $1500 item is $1155 with $345(rounded up to 23%) in taxes. The Fair Tax is not tax inclusive as the income tax. The Fair Tax is tax is exclusive as it will remove the embedded 23% by eliminating corporate income taxes and apply the $345 as separate sales tax on the bill. Fair Tax FAQ #47 The total will still be close to $1500.”
This is not the current understanding of how the FairTax will operate. In fact, if you assume that employee withholdings will flow back to the employee and not the employer, imbedded taxes don’t amount to 22%, as we previously believed. Pre-tax price reductions will amount to something on the order of 8-12%. That means that after-tax prices after the FairTax is implemented will be somewhat higher than they are now, and imports will increase by almost the full amount of the new sales tax (since there are no savings from the removal of imbedded taxes). However, when you net out the rebate from the prices paid at the register, consumption purchases up to the poverty level will still be lower than they are under the current system. Costs of consumer goods above the poverty level will be higher than they currently are, but paychecks will be higher, also.
Where did that "flow back" concept arise? The withholdings come from the gross compensation to the employee. The employer has no right to steal that money i.e. "flow back" into the employers coffers. That would be a pay cut.
Thomas Jefferson to Pierre Samuel Dupont de Nemours, 1811
We are all the more reconciled to the tax on importations, because it falls exclusively on the rich, and with the equal partition of intestate's estates, constitutes the best agrarian law. In fact, the poor man in this country who uses nothing but what is made within his own farm or family, or within the United States, pays not a farthing of tax to the General Government, but on his salt; and should we go into that manufacture as we ought to do, he will pay not one cent.
Taxes raised by our new nation were largely on imports so when Alexander Hamilton wrote, If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.... he was referring to the the purchase of imported goods, not domestically produced.
Why does that matter? In addition to raising money for the federal government, import duties functioned to protect developing domestic manufacturing, intentionally.
I can't imagine Alexander Hamilton endorsing a tax system that proposes to collect 30% on rents, for instance.
“I can’t imagine Alexander Hamilton endorsing a tax system that proposes to collect 30% on rents, for instance.”
Can you imagine Mr. Hamilton endorsing a system like the one we have now, which requires some 67,000+ pages to document?
“It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow. Law is defined to be a rule of action; but how can that be a rule which is little known and less fixed?”
James Madison, Federalist #62
A sales tax will not add anymore to the cost of an item than income taxes do. Are you so naive you think employers don't add the cost of income taxes to their product now?Talk about naive...Do you even know how much of what we purchase isn't made here therefore does NOT have income tax "added to the cost"? (even if that was possible)
Are you so naive to think businesses can just arbitrarily add the cost of income taxes to their product? Following that (il)logic businesses can just increase prices on a whim without consequences.
Hey I know, everyone could add their income taxes to their wage and not be burdened with taxes like calex59 thinks businesses do. < /lunacy >