Mamamontezz's Mental Rumpus Room

Fair Tax

I believe that the tax system in the United States is broken. When a Person like TeRAYza Kerry can end up paying only 14% on an income of $5MILLION; it gives the demagogues the ammunition to institute a class-warfare argument that, at best, is disingenious, and at worst plays on the real fears of an ignorant (in economic terms) electorate.

What is the solution? I belive that the best proposal I have seen is the "Fair Tax"(HR-25). It would eliminate ALL of the present tax code and replace it with one simple national sales tax.

No more taxes hidden in the cost of items we buy, artificially raising prices.

No more worry every year if we kept the proper records.

No more asking advice from three different agents of the IRS and getting three diametrically opposed answers.

No more having to prove to the IRS that we fairly submitted ourselves to the annual accounting of our finances, where we are guilty untill we have proven ourselves innocent.

Just one tax that everyone pays at the same rate, regardless of our income level.

A tax that allows us to keep ALL that we earn, and allows us to determine what we pay through our choice of purchases. It would also raise the standard of living of the "working poor"; they would keep ALL that they earn and receive a monthly refund based on the regular tax costs on the necessities of life, effectively giving them a 10 to 15% raise in pay.

Want to know more? I put an thumbnail explanation of the Fair Tax by Neal Boortz in the extended entry. Follow the link and add your name to the growing number of people that want a truly FAIR way of taxation to fund the government.

LET'S DEMAGOGUE THE FAIR TAX

Perhaps you noticed that in quite a few congressional races around the country Democratic candidates have been attempting to frighten voters into believing that the evil Republican candidate is going to burden them with a horrible new tax. More specifically, the wicked Republican is going to add a 23% federal retail sales tax on everything they buy .. and this is in addition to all the other taxes they're already paying!

Effective politics? You bet! Can you imagine how frightened some middle or lower income American would be at the prospect of paying another 23 cents on the dollar for everything they bought? If I believed that a Republican was going to do such a thing ... hell, I"D vote for the Democrat. And there aren't many things that could cause me to vote for a Democrat. A threatened beheading might do it, but I'm not even sure about that.

The big problem with this particular Democratic campaign charge is that it is simply not true. It's a lie. Not only is it a lie, but every single Democrat who has made this charge against their Republican opponent knows it to be a lie. In the Boortz book, that makes these Democratic candidates, and that includes Congresswoman Denise Majette running for the U.S. Senate in Georgia, and Inez Tenenbaum who is running against Republican Jim DeMint in South Carolina, bold, intentional, premeditated liars.

I've been studying the Fair Tax proposal in its various forms for 20 years. I am convinced that this plan to replace virtually all personal and corporate taxes with a national retail sales tax would bring a period of transformation and economic growth to America such as has never been seen before. On top of that, it would be a financial boon to the poor and the middle class.

First ... A Brief Overview

You can learn all of the details of the Fair Tax play by clicking on this link. In case you don't have the time, here's your brief overview.

The Fair Tax (HR-25) would eliminate all personal corporate and personal federal income taxes. It would eliminate all federal payroll taxes, including Social Security and Medicare. The Death Tax ... gone. Capital gains taxes ... gone. Gift taxes ... gone. Excise taxes .. gone. In the place of all of those taxes we would have one national retail sales tax on all purchase at the retail level. This means you would get 100% of your paycheck. The amount you place into an investment .. not taxed. The amount you put into a savings account .. not taxes. Money you give to your kids ... not taxed, neither to you nor to them. You make a consumer purchase, you pay the federal sales tax.

One more thing. The Fair Tax plan calls for the repeal of the 16th Amendment. That's the Amendment that brought us the federal income tax.

When the Fair Tax plan was first being developed it was believed that in order to be revenue neutral ... that is, to make sure that there is no decrease or interruption in the flow of tax revenue ... the national sales tax would be around 23%. I'm led to understand that soon-to-be-released research will show that the actual tax would be around 20% or slightly less. Since I've already run the numbers, we'll stick to the 23% figure for the purpose of this essay. Call me lazy.

So ... let's get on to the Democrat's charges that these evil, wicked, mean and nasty Republicans are plotting a financial Armageddon for poor and middle income Americans.

What Happens to Poor and Middle Income Americans?
OK ... let's put on our sensitivity hats for a few minutes here and think of the consequences of the Fair Tax Act on our nation's poor, poor, pitiful poor. After all, they can hardly afford a 23% sales tax when they're living paycheck-to-paycheck in the first place, right?

Remember ... right now, for the most part, those whom we define as "poor" aren't paying any income tax anyway. In fact, many of them are getting checks from the government. The absurdly-named Earned Income Tax Credit, for example. So, how can these people survive if suddenly they're paying a 23% retail sales tax?

There's no doubt that any implementation of the Fair Tax would fail in short order if nothing were to change except that the poor would be paying today's prices for a gallon of milk or a loaf of bread, plus a 23% sales tax. But ... that would be far from the reality under the Fair Tax. Under the Fair Tax the poor won't only survive, they'll positively thrive! The Fair Tax could turn out to be the best poverty-fighting tool devised in this country since the concept of hard work.

Let's begin by considering two realities.

First, remember, please, that the poor, along with everybody else, will no longer have Social Security taxes or Medicare taxes withheld from their paychecks. Whatever they earn, they get on payday. For most of them this means an immediate 10 to 15% increase in their earnings.

Second. There's that 22% in imbedded taxes buried in the cost of all consumer goods. This isn't my figure; it comes from respected economists. That 22% is sitting there in virtually everything Americans have to buy.. and that includes poor Americans. As soon as the competitive forces of the free market work their magic, and they always do, consumers, including the poor, will be paying at least 20% less for virtually everything they buy, including the basics of food, clothing, shelter and transportation. Yes .. they'll have to pay the new national sales tax, but when you factor in the lower prices caused by the disappearance of the embedded taxes you'll see that the total price paid for consumer goods will remain very nearly the same.

So ... just considering these factors, the Fair Tax delivers a winning hand to people living in or near to what we call poverty. They get every penny they earn on payday, and when you factor in the Fair Tax and the lower prices, they're actually spending less of their money for a retail purchase than before.

A practical example: Let's pull out the calculators. Let's say that a single mother with two children spends $45 a week on groceries. The removal of the 22% embedded tax would bring the price of those groceries down to $35.10. The sales tax would be $8.07. This brings the total price to $43.17. That's less than our poor mother would have paid under today's tax system. This single mother, whom we'll consider "poor," has just received a 10% to 15% increase in her weekly paychecks, and she's paying less at the grocery story for her basic necessities! Does that sound like such a rotten deal to you?

At this point you should be thoroughly convinced that the Fair Tax would actually benefit, rather than harm the poor. But, then again, maybe not. Perhaps you were educated in government schools, or you're just hard to convince. Sit down. Here's where I close the sale.

The Rebate

The folks who wrote the Fair Tax plan knew that burdening the poor with a 23% retail sales tax would doom the plan from the outset. They decided to devise a way were nobody, rich or poor, would ever have to pay the sales tax on the basic necessities of life. So, under the Fair Tax plan every consumer will receive a credit to their checking account or to a debit card equal to the sales tax that person would be expected to pay on the purchase of the basic necessities of life for that month. The size of the monthly payment will be based on the government's published poverty levels for various sized households. Considering the number of checks and financial transactions of this type the feds undertake every single month, this is entirely "doable."

Here's an example of how the rebate payments would have worked in 2003.

You are now a married couple with two children. The Fair Tax Act sets forth a formula for computing the poverty level, based on government figures, which negates any marriage penalty. Under the Fair Tax Act in 2003 you would have been granted an annual consumption allowance of $24,240. This is what the government would assume you would have to spend during that one year to buy the basic necessities of life for your family. The sales tax on this amount would equal $5,575. The government will rebate this amount to you in 12 equal monthly installments of $465. It's clear .. you're better off, MUCH better off, under the fair tax plan.

But what about a single woman with one child? Her monthly rebate in 2003 would have been $232. The lowest rebate payment would be to a single person with no dependents. That person would receive $172 per month.

Now ... bear in mind, this rebate isn't only paid to the poor. It is paid to everyone, rich and poor alike. The purpose here is to make sure that no American has to pay the Fair Tax sales tax on the basic necessities of life. Unlike the present income tax system, the Fair Tax treats each and every person in this country exactly the same. This, of course, presents somewhat of a problem to politicians who like to use the tax code to foment class distrust or outright warfare.

OK ... let's add it up for America's lower income citizens:

They get their entire paycheck.
Even with the sales tax, and considering the drop in prices, they'll be paying essentially the same for everything they buy.
They get a check from the federal government every month to rebate any sales taxes they had to pay.
Though their tax returns aren't that complex, let's also include the time these the poor (all of us, really) will save by not having to keep tax records or file tax returns.

If you're looking for some reason to oppose the Fair Tax plan, you're going to have to find a better excuse than its effect on the poor.

The Democrats who are using sponsorship of the Fair Tax proposal against their Republican opponents know the real story. They also know that for the most part the media doesn't understand the plan and will make no effort to learn the truth. Print this, copy it, spread it among your friends. Expose the lies of Denise Majette and Inez Tennenbaum and other like them. This tax reform idea is simply too good to allow it to be destroyed by desperate campaign lies.

Posted by Delftsman3 at October 26, 2004 03:49 PM