Now that the 2008 elections are behind us, the collective psyche can move beyond electing the first black man as President - hugely symbolic, to be sure, of the American Dream. It is in the realm of political and social substance that we can now tread. There are great issues at hand that require fresh thinking and decisive action rather than more of the same deferred political interest machinations: Funding the federal government, freeing individual creativity and commerce from crushing legislation and establishing the finest educational system on the planet. Fortunately, the means to effectively address each of these issues is known:
The Fair Tax - overhauling the financing of the federal government
Repealing outdated, self-defeating, and non-productive legislation
Redefining Public Education - Tuition Vouchers for every student K-12
The most important of these is enacting what is called The Fair Tax.
On January 4, 2007 H.R. 25 was introduced in the House of Representatives. The purpose of the bill is: “To promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.”
The Fair Tax, as it is called, can’t be discussed until you can grasp, comprehend, appreciate, or otherwise wrap your head around a reality of NO FEDERAL TAX on INCOME. Period.
That’s not an easy concept because income taxes have been a part of the American experience since the 16th Amendment was ratified in 1913. That's a century of conditioning to an escalating and dominating tax policy. Income tax is, well, just a part of life. Not. Companion legislation to the Fair Tax begins the process of repealing the 16th Amendment.
You have to imagine NO Federal Tax on Income. Your income. Her income. His income. Their income. Its income.
Income means income – the dollar value of your labor, talent, service, or product in the market. Therefore there are no federal taxes masquerading as payroll tax, capital gains, inheritance, alternative minimum tax, self-employment tax, unemployment tax – no federal taxation of income.
Now, consider how many taxes on income are currently embedded, hidden, in the price of everything. Imagine purchasing or selling any product or service without that hidden expense?
If you have some grasp of a Federal Income Tax-Free America, then the concept of a 23% inclusive sales tax* on new goods and services is not a shocker. That 23% is what a host of experts calculate would maintain current federal income tax revenue. The research can be linked at www.fairtax.org.
The Fair Tax is a fair tax – it maintains current federal revenue and all programs, the whole enchilada. The Fair Tax does not reduce the federal budget; nor does it increase it, although a robust economy insures windfall Federal revenue.
April 15 remains, but its distinguishing feature is that it is the only day possible between April 14 and April 16. There is no form 1040 or 1099, no income tax deductions, no tax shelters, no tax credits and so on.
No withholding. If you want to know how much of your income is taken by the federal government, you need only look at the sales receipt of any purchase or service and there, clearly printed, is the 23% remitted to the Feds. Real time taxation. You won’t have to estimate a thing; you won’t have to pre-pay a tax.
The sales tax is imposed on all retail sales for personal consumption of new goods and services. Intermediate business sales and exports are not taxed. Used goods or any savings, investments, or education tuition expenses are not taxed. There are NO exemptions under the Fair Tax. There are no special tax advantages to be gained by lobbying. Everyone pays the same rate.
The Fair Tax eliminates the ability of the government, through the IRS, to reward or punish citizens and business with the tax code. Taxpayer rights are incorporated into the act. The burden of proof of taxpayer non-compliance rests with the government – what a concept: Innocent until proven guilty. Taxpayers are entitled to professional fees in disputes unless the government establishes its position justified.
But what about the poor, the financially struggling? The Fair Tax is fair. Every American family is given a monthly “pre-bate” of the amount of federal sales tax on essential goods and services.
Note the big difference between a pre-bate and a rebate; you get the money before you spend it. This amount is based on the federally defined poverty level. As calculated in H.R. 25, the federal poverty level for a family of four allows them to spend $27,380.00 TAX FREE each year. For the family of four that’s a prebate of $525.00 a month. This pre-bate is provided to all citizens with a valid social security number. You want a middle-class tax break? This is it. You want to assist those behind you? This is how.
Under the Fair Tax employees receive their entire paycheck and employers don’t have to hassle with withholding income taxes, social security, and other payroll taxes. Think for a moment the cost of compliance with current income tax laws and regulations. It’s boggling.
The Fair Tax is truly fair. Everyone who buys goods and services pays into the federal revenue. This includes illegal aliens, drug dealers, tourists, and even those clever folks who have spent a lot of time and money hiding their income to avoid taxation. There's no longer an incentive to hide, shift, export, or relocate income. Where’s the best place to invest capital, grow a business, research and develop new technology, and just plain work? The U.S.A.
The Fair Tax significantly enhances citizens and business in their pursuit of happiness. The export of “jobs” and capital away from the United States will diminish. Former Federal Reserve Chairman Allen Greenspan believes that billions of dollars in capital and jobs now overseas would return to the United States within months of implementation of the Fair Tax. That’s capital for business expansion, job creation, supply and demand and a 23% sales tax on consumption. If federal taxation is honestly about generating revenue, this is the way to do it. This IS the stimulus package to end all stimulus packages.
But wait, someone says. What about my mortgage deduction? Deduction from what? There’s no tax on your income. There’s no need for a deduction. But wait! That’s 23% added on to the price of the home I plan to buy. Not if you’re buying an existing house – no tax. The Fair Tax does not double tax – federal taxes have already been collected. Even when buying a newly constructed house in the Fair Tax era the asking price will no longer include the hidden taxes currently included. No tax on the money saved for the down payment. No tax on the income used to purchase the house or pay the mortgage.
The Fair Tax has many opponents. I suspect most of them haven’t taken the time to actually look at the bill and compare the benefits of the Fair Tax compared to the current system. Can it become law? Sure. “But, PunditGeorge,” I hear, “they’ll never allow it!” They, who? Of course those vested in using tax policy as a political weapon will object. But can it be done?
In 2008 the Louisiana Legislature decided to give themselves a 300% raise. Naturally this didn’t go over well with most folks. The legislators got the message and voted to give themselves a measly 200% raise instead. Governor Bobby Jindal said he would not interfere with the legislature on these matters. To put it mildly, We the People of Louisiana made it very clear to the Governor that if he did not veto this outrageous bill he would be a one-term Governor. The bill was vetoed. Governor Jindal is more popular than ever.
PunditGeorge will look at the other ideas in future blogs.
* This 23% inclusive national sales tax is used by opponents to scare the public into seeing the Fair Tax as a huge tax increase. In the 4th Congressional District in Louisiana this past year the Democratic Candidate Paul Carmouche ran ads warning voters that Republican John Fleming was planning to add a 23% sales tax to the cost of everything. Fleming supports the Fair Tax. Perhaps enough voters in the district knew about the Fair Tax to support it. Fleming narrowly defeated Carmouche in the general election.