Skip to comments.How to Shut Down the IRS(With The Fair Tax)
Posted on 04/19/2007 1:55:56 AM PDT by Man50D
The following is an address I plan to deliver on the House floor this evening regarding Tax Day.
Madam Speaker, many things change from year to year. Tax Day, however, is an exception. Every year, millions of Americans send much of their hard-earned money back to the federal government. Because of the numerous complexities that have become the U.S. tax code, many virtually need an accountant, and others just send in a large check out of sheer frustration, hoping to figure out the right number later on.
What is fair about our current tax code? Absolutely nothing. Is there a better solution? You bet. One answer can be found in the form of the Fair Tax, and it is a solution that helps Americans keep more of the money they earn and creates a more equitable system of collection. In short, the Fair Tax eliminates our current broken tax system and replaces it with a national sales, or consumption, tax to be administered by the states. When a hard-working American receives his paycheck, he actually gets to take it all home. Gone, too, are the estate and capital gains taxes.
I applaud Congressman Linder of Georgia for continuing his strong push for his bill H.R. 25, the Fair Tax Act of 2007. With its enactment, the national sales tax rate would be set at 23 percent beginning in 2009, at which point Americans would no longer be afflicted by the current tax system. Gone would be personal and corporate income tax, the gift tax, taxes on social security and Medicare, and even the infamous alternative minimum tax, which is estimated to hit 19 million Americans in 2006, a figure that could easily double in the next few years if nothing is done. In the case of the Fair Tax, the only people that pay more are those that choose to spend more.
Currently, and in part due to the tax cuts passed under the Bush administration, there are many valuable deductions in our current tax code that are fair and serve a good purpose. On top of the overall savings provided by the Fair Tax to the consumer, it would also permit exemptions from the tax for property or services purchased for business, export, or investment purposes and for state government functions. Nonetheless, this pro-family legislation allocates a sales tax rebate for certain families, based on family size and income. Every family would receive a rebate of the sales tax on spending up to the federal poverty level, plus an extra amount to prevent any marriage penalty.
Another important aspect of this bill is the provision to let the individual states choose how to administer the collection of consumption tax and redirect that funding back to the U.S. Treasury. Many states already have a sales tax, and so the existing state tax authorities will essentially carry on as before without the need to create additional bureaucracies. This system will also be instrumental in eliminating the "tax gap" that exists under the current system. Instead of the Internal Revenue Service waiting on taxes owed, with billions uncollected every year, the Fair Tax is collected at the point of sale. Once the Fair Tax is in place in 2009, funding to the IRS would be eliminated after fiscal year 2011, with taxes directed through a Sales Tax Bureau. Gone would be the days of the IRS spending millions of tax dollars each year just to track down uncollected taxes - the IRS itself would be gone.
Do you notice they don’t include the $69,000 in FairTax as part of the financed portion of the house. I guess they assume people have $69,000 in cash lying around to pay sales taxes with.
The correct lesson is: when you give the government an easy way to confiscate more and more of your wealth, you can expect the government to actually do so. Since they can raise the rate any time and they hold a gun to the head of the retailer (collect this money from the customer when you sell them anything, then send it to us, or we’ll put you out of business), you can expect the national sales tax rate to do one thing, like Social Security Taxes did: go up and up and up over time.
Social Security Taxes were and are transparent to the employee: the amount he was paying (what was withheld) was listed on every pay stub. That didn’t stop Social Security Taxes from going up and up and up. Of course they never see the half of their taxes that never gets into their gross pay, the "employer pays half" that the employee really pays, but never sees.
But this is all theoretical. The Republicans controlled Congress from 1995-2001 and 2003-2007 and never got this done. I suspect I will not see another Republican Congress in my lifetime, although I pray I do. And no Demonrat Congress will ever do this. They're stupid and HATE THE RICH!!! is too deeply imprinted in their psyches, and they plan tax law to punish the RICH!!!, or what they think will punish the RICH!!!
Gods help us if they ever get smart.
Of course, this thread has been getting me to think again about the issue, which I once thought about long ago. I could actually support a national sales tax if:
The constitutional amendment that abolishes the Sixteenth Amendment (you are planning on that, aren't you?) also says that the National Sales Tax can never be more than 23%, unless specifically approved by a specific vote of the American people, and that increase will be only for a specific time period, never more than eight years, and the rate reverts to 23% at the end of the time period, unless there is a new vote by the American people. The temporary increase provisions allow the U.S. to finance a war or other crisis situation, if that should be necessary. Congress will have the authority to lower the tax rate below 23%, if they want. Fat chance they will ever use that.
On Boortz radio show this morning, he, (Boortz) says if the Republican introduces this bill, calling it the, “fair tax” he, (Boortz) will sue.
Boortz says he has a patent on the term, “FAIR TAX”, something to do with a book he has written about fair taxing. He wasn’t joking about this.
DEBUNKING THE FairTax:
A Fair Question about Fair Tax
OPEN LETTER TO BOORTZ/LINDER (FairTax)
JORGENSON EXPLODES FAIRTAX MYTH (FR Exclusive)
Fair Tax - Straightening Out Some Confusion
FAIR TAX BOOK- 2nd Ed. Revisions
A FAIRTAX PRIMER
WAGES: It has been made clear by many proponents of the FairTax that they are expecting 100% of their current gross pay, and that many employer/employee wage relationships, including those for government workers are controlled by contract. So, we'll assume every wage earner gets to keep 100% of their current gross pay. Everyone can figure out for him or herself what that gives them in terms of a take-home pay increase.
BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.
PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.
GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this is a net 22.35% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).
ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.
GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.
FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60. This assumes no evasion and no reduction in spending by consumers on new goods and services when the large sales tax is imposed. (an unrealistic assumption by the FairTaxers)
SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved after-tax money.
Does this sound like a utopia to anyone? Isn't it very likely that a 36% sales tax (or much higher like 50%) will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?
And once people either stop buying, or buy used, or barter for services, or buy on the black market, or funnel purchases through their businesses for a tax exemption, it is very likely that the FairTax inclusive rate would be 33%-- which is an exclusive rate of 50%, making the problem worse.
The FairTax plan makes the false ASSUMPTION that 23% inclusive will be enough to fully find the government at today's level.
FairTaxers generally agree that the FairTax will cause higher prices and FairTaxers think that these will be ok because the purchasing power is what matters. Wage earners will receive a pay increase with their 100% paychecks to compensate for the higher prices.
Domestic prices will rise about 18-25% after a small (max 8%) price cut and then the 30% FairTax is added-- and rise the full 30% for foreign items.
Stick with me here for just one more minute. The government will also need a "raise" to pay the higher prices (because the government pays the FairTax on everything too), and it will take the form of additional revenue that needs to be raised. That additional revenue can ONLY be raised by increasing the FairTax rate, there is no other source to generate revenue. So, the 23% rate when multiplied by 1.18 is now 27.1% inclusive, which is 37.2% exclusive.
And that assumes no reduction in the base. If we assume just the very minimum that the base reduces 8% due to reduction in shelf prices-- ie. no reduction in unit volume of sales, just an 8% lower price for everything, then we need to divide the 27.1% by 0.92 to get a new inclusive rate of 29.5%, which is 41.8% exclusive. And this assumes ZERO evasion, and the same exact level of unit sales as now.
Most recently the FairTax commission found that the FairTax Rate was grossly understated by the FairTax people and that the actual rate would have to be MUCH HIGHER than 29.87% exclusive due to 1)government paying itself tax and 2) erosion of the taxable base due to all factors. Just a 15% erosion in base, coupled with a Federal government costing 20% more than presently (the cost with the FairTax added) makes the rate 33% inclusive which is 50% exclusive.
The FairTax people need to go back to the drawing board and plug in the new reality where prices go up 18-25% and stick that in their models and see what somes out the other side. It won't be pretty is my expectation.
I want to see elimination of corporate taxes, elimination of death taxes, additional reductions in the marginal income tax rates until we find that we are the Laffer optimal point.
In addition I want to see Social Security privatized, and I am willing to pay extra money to pay for those who were promised this benefit, and never receive a penny of it myself. I also want to see Medicare reformed from top-to-bottom. I also want to see Tort Reform to reduce the exorbitant costs of insurance on our medical costs. And we need to reduce the scope of the Federal Government to its constitutionally mandated responsibilities and get rid of the rest. The Golden Goose that is America is way too fat and needs to be put on a severe diet.
These are what we need to do, incremental improvements in what we already have. This is already working and we should keep at it...even Boortz seems to think so. Boortz (9/20): "...the economy continues to go like gangbusters. We are right in the middle of an historic economic boom. Don't let the mainstream media or the Democrats tell you otherwise...we've never had it so good...
You are being dishonest! It's not a National Sales Tax it's the Fair Tax! Neal Boortz and his followers (Boortzbots?) will be very angry with you!
Seriously, calling a National Sales Tax a "Fair Tax" is as honest as lefties calling Socialized Health Care a "Single Payer" system.
(Every time Boortz mentions "Fair Tax" I go elsewhere on the dial.)
Better chance of growing boobs on your back than shutting down the IRS. They are too powerful.
1. that was along time ago in a far far away reality.
2.When women got the vote is the exact point this country started to go to hell.
Changing the tax code to one that goes up on auto-pilot (the FairTax) is not going to change the desires of politicians to buy votes. And, once they see that they have not enough money coming in, they will put a income tax surcharge on those “rich” people making more than say $100k per year. This will get them votes from 80% of the population, at the expense of the 20%. And they will do this on top of the 40% or higher FairTax sales tax (when expressed as a normal sales tax).
Polticians spend to buy votes. Plain and simple. The FairTax does nothing to stop that basic fact of politics. Nothing.
False. A recommendation to do something that is not going to happen is not the same thing as repeal. Show me how 38 states are going to ratify an Amendment to the Constitution and make the beginning of the FairTax contingent on this repeal and then this argument can be waved away. Until that happens it is a very valid argument against the FairTax.
And there are many other problems with the bill.
You claim visibility of taxation as a big plus. (I don't agree, I think that sales taxes are much more difficult to track than something that is shown in one line every year on a tax return but that is another argument).
But in a related vein,
What do you think the very visible welfare payment (to every man, woman and child in America) from the FedGov in the form of a prebate every stinking month is going to do to the pysche of the average person. Will it make them feel more or less dependent on government?
HOW? they won’t even know how much people make!
One way would be to pass an emergency income tax law. It will start as an Emergency measure when they find out that they are not collecting enough because too many transactions are going underground or switching to “for business use”. It would probably be implemented as a version of the Flat Tax, say 10% of everything over $100k.
Since there would be an Emergency, and people need their social security checks, and the government workers need their paychecks, this would be about the only politically possible way to make up the shortfall.
And make no mistake, there will be a fairly large reduction in the retail base caused by a 40-50% sales tax. This reduction in volume will trigger an even larger drop requiring even higher sales tax rates. It is a terrible negative feedback system.
Maybe, if you make less than this targeted amount you just have to file a postcard that says you are below the amount with no other details maybe, just to get the votes of the “less fortunate”. Employers will be the ones that have to enforce the reporting for all their “rich” employees.
The rich don’t need the money anyway. /s
This will be hunky-dory with most of the dependent electorate.
Wrong, please link to the provision in the bill where you think this happens. It isn't there.
There is the problem, it isn't one line! Withholding isn't one line, even the simplest 1040 isn't one line
The amount of total tax you owe each year is certainly shown on ONE LINE. On the regular 1040, it is line #63.
Right below your total income tax for the year on line #63, there is a line #64 where it totals all your withholding for the year. And below that on line #65 there is a total of all the estimated tax payments that you made through the year.
When you subtract what you have already paid from your total tax bill, you get the Amount due. But your total tax bill for the entire year is shown on Line #63.
compliance costs are billions of dollars per year
As a percentage of taxes collected (in the trillion plus range), compliance costs are very small amount. Most things that corporate accountants do are not done just for tax purposes, but to measure the financial health of the company for investors. The same for corporate income taxes. very low percentage of taxes collected. Don't want the rebate for tax on food, health care cost b/c it does something strange to your fragile psyche then don't take it
You didn't answer the question-- do you think having every American nam, woman and chilf receive a monthly check from the government whose amount is up the legislators will make Americans feel more or less dependent on government?
Never said they did. Who do you think makes the laws that gives these handouts. Its not the poor. Its the fat cat congressmen and senators buying votes. You seem to want to forget all the other money that government hands out. Corporate bail outs, tax incentives, football stadiums just mention a few. I don’t remember saying I supported any of the programs that you mention. And there you go again with the class envy. I only see it like it is.
You throw a lot of numbers out with almost no supporting documentation.
Every man is entitled to his opinion. Now I knpow yours.
What number would you like to question first?
All of them. You are the one making the argument. Start citing legit sources. You can start at the beginning.
The only way REAL reform is gonna happen is for every American to burn their tax returns on April 15th and tell the IRS to go eff themselves.
Sorry, not going to play that game, I give my basic reasoning for every single number, and there is tons of backup and debate on every single number on the liked threads plus the dozens of other threads on the subject.
If you want to question a specific number and start at the beginning if you want, I will address your questions one at a time.
The basic idea is that there cannot be a FREE LUNCH, so there cannot be an immediate rise in purchasing power. Since workers pay is expected to go up, this means that of course prices will also go up. But not everyone is a worker. And that plus the fact that goverment needs to pay the 29.87% tax on every non-education related expenditure means that they haven’t calculated the required income correctly. The parity level of government tax income will need to be in excess of 20% higher than right now to stay even.
And the idea to put every man, woman and child on the Federal dole through the prebate will just foster an increase in the already too-high level of dependency on government handouts. You do recognize that the elected Representatives will still be able to monkey with the prebate to achieve their social engineering, and to buy votes from unproductive citizens at the expense of the productive, don’t you?
Or do you think the FairTax will remove the politics from politics?
You will never get rid of politics, but I think the FairTax would give us a ready way to judge how our representatives are doing their job, whether taxes are going up or down.
I wonder about how the transition from one to the other would take place. Would all stored inventory be considered used (already taxed)? I see a rough transition as goods cost more before the effect of lower labor rates kicks in.
I also note that services are subject to the NRST. If I repair someone’s computer or fix their car and get compensated for it, am I supposed to charge the tax?
I like the idea of getting rid of the gov’t wanting to know where all my money comes from, but as each one of is our own little business, does that not open us up to gov’t intrusion as we provide any goods or services to anyone else? I guess I could give it away for free and not be taxed.
Do divorced parents get half of the prebate for each child? There must be many unintended consequences that those lawyers in DC would need to foresee or leave up to the courts.
As to the artist selling a painting on consignment, he or the consignee would have to submit the tax, then split the remainder some way. Once it is sold one time though, it would be tax exempt thereafter. It would be easy to game the system by selling it at a low price and sharing the profits of a later sale for more, but I guess that could be made illegal. More inspectors!
My support for the NRST is based more on the morality, or lack thereof, of a tax on my income at the federal level. A state income tax doesn’t bother me as much.
One last question; The 16th amendment repealed the apportionment of taxes by population and made it by income. Since taxes would now be by spending, would there not still need to be an amendment?
Money is power, power is control. You think for one minute the fat cats up in the Senate are going to give up the enforcement arm of government like the IRS?
SInce they expect everyone to get 100% paychecks, there won't be a huge lowering of labor rates-- maybe 7% less.
If I repair someones computer or fix their car and get compensated for it, am I supposed to charge the tax?
Yes, if it is a personal computer or personal vehicle-- no tax if they claim it is a business computer or business vehicle. Same for plane tickets, office supplies, hotel rooms, restaurant meals, gasoline, auto repairs, tolls, promotional giveaways, postage, any anything else that could have a potential for business OR personal use. Does that seem like a big loophole? Does anyone think that will be exploited to avoid a 29.87% (or higher) sales tax?
And what happens when sales are moved from taxable to non-taxable in the FairTax bill? That's right, the sales tax rate is increased to make up for the shortfall...
but as each one of is our own little business, does that not open us up to govt intrusion as we provide any goods or services to anyone else?
Bingo, there will have to be FairTax enforcement agents and they will still have teeth...
The FairTax won't work as advertised. Simple as daylight.
I’m not saying that it can’t or won’t work, there are just so many ramifications of so fundamentally changing the way we do business. The way we do business is changing rapidly already. If the tax were solely on material goods I could step further on board.
With our increasingly service based economy, I think it opens each one of us up too much to federal accountability as service providers. I think though that the NRST would make the US more amenable to producing goods here, so it could come out even. I’d like to see the services angle discussed more.
I guess I should take it up with Boortz or the FairTax folks. I think tax reform is crucial, I want to make an informed decision.
Another concern I have is that all the people receiving entitlements (Medicare and Medicaid, ...) will still be getting them under the NRST. Thus the 23% inclusive rate. How do you determine the market rate of a government benefit?
Boortz doesn’t understand what he is talking about most of the time, he is an entertainer who used the FairTax issue to get a NYT #1 Bestselling Author title next to his name. The book is full of inaccurate and misleading statements. In the 2nd Edition, they made over 100 changes but many mistakes and rosy pipedreams remain.
And the worst part is that the rank and file still believe the “Keep 100% of your paycheck and prices will stay the same” mantra— nothing but a FREE LUNCH call to action.
Your idea of not taxing services would require the rate to be at least double (60%+ when expressed as a sales tax) on goods. The base would be reduced too much.
The problem is almost $2 trillion dollars in tax receipts is a large number to get out of the economy without a very rigid and powerful collection/enforcement appartus behind it. People only pay income tax voluntarily because of the reporting by third parties— employers and financial institutions, take that away and collection rates would plummet making the burden higher on the honest people.