The Unorganized

American Militia

King George didn’t listen to us either!

Congress Must Pass Fair Tax Act

By U.S. Rep. Mac Collins

Past Congresses have moved in the wrong direction by making our tax laws more complex and expensive for business and individuals to comply with. To keep our economy growing, Congress needs to take action now.

My colleague, Georgia Republican Congressman John Linder, has sponsored the "Fair Tax Act" (H.R. 25), a national retail sales tax on new goods and services. It would replace all individual and corporate income taxes, payroll taxes as well as capital gains taxes, estate taxes and gift taxes.

The Fair Tax replaces the way we are currently taxed, which is based on our annual income, with a tax on goods and services. The Fair Tax, basically, is a voluntary "consumption" tax. The more you buy, the more you pay in taxes. The less you buy, the less you pay in taxes.

The federal government will continue to be fully funded, including Social Security and Medicare.

The Fair Tax will reduce the costs of goods and services by 20 to 30 percent. It will allow workers to keep 100 percent of their paycheck, pension and Social Security payments with the exception being state or local withholding

The Gross Domestic Product will increase by almost 10.5 percent in the first year after its enactment because real wages would increase and tax compliance costs for business would decrease by 90 percent.

The fair tax would also be good news for investors. Real investment will initially increase by 76 percent relative to investments that would be made under our present tax laws. While this increase will gradually decline, it remains 15 percent higher than under the existing tax structure.

American exports will increase by 26 percent initially and would remain more than 13 percent above present levels under the current tax system.

Studies of the Fair Tax have shown that many U.S. companies will choose expansion here in the United States versus abroad, and in turn the United States will become more attractive to many foreign owned companies looking for expansion possibilities.

President Bush, during his State of the Union address in January, said the economy is turning around because the American people are using their money far better than government would have. The Republican majority in Congress was right to return it to the American people and not keep it in Washington.

A fresh and a fairer approach to a Federal tax system is needed. Therefore, it is time for Congress to pass the Fair Tax (H.R. 25).

As a cosponsor of the Fair Tax Act, I have asked Chairman Thomas of the Ways and Means Committee to hold hearings on this vital legislation. I am hoping those hearings will get under way in the near future.

The FairTax Versus The Income Tax

The federal income tax was established in 1913. It actually required an amendment to the United States Constitution to make it legal. Why? Our Founding Fathers believed that taxing individuals on their private income was economic folly. They were right. The absence of an income tax, a tax on productivity, allowed our economy to grow and individuals to prosper for 124 years.

The original income tax legislation affected only individuals earning $4,000 or more per year, at a time when the overwhelming majority of Americans earned far less. The 16th Amendment was eventually ratified and added to the Constitution, and a national income tax was born.

That 16th Amendment was simply worded, the tax return consisted of only one page, and the entire tax code itself consisted of only 14 pages. No one could have imagined the vast impact it would have on the lives of their children, grandchildren, and future generations of Americans.

Since then, the federal income tax system has become so complex that it requires tens of millions of Americans to seek professional help to comply with it, not to mention the enormous, expensive federal bureaucracy required to enforce and administer the tax. The Internal Revenue Service employs more investigative agents than the FBI and the CIA combined, and with 144,000 employees, employs more people than all but the 36 largest corporations in the United States.

In addition to the $10 billion needed to operate the IRS, at least $265 billion (that is $900 for every man, woman, and child in this country) must be added to account for the cost of complying with the tax code. Massive amounts of our national wealth are consumed merely by measuring, tracking, sheltering, documenting, and filing our annual income.

What is the FairTax plan?

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement, and, through companion legislation, the repeal of the 16th Amendment. This nonpartisan legislation (HR 25/S 1025) abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax -- administered primarily by existing state sales tax authorities. The IRS is disbanded and defunded. The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

The FairTax proposal is a comprehensive plan to replace federal income and payroll taxes, including personal, gift, estate, capital gains, alternative minimum, Social Security/Medicare, self-employment, and corporate taxes.  The FairTax proposal integrates such features as a progressive national retail sales tax, dollar-for-dollar revenue replacement, and a rebate to ensure that no American pays such federal taxes up to the poverty level.  Included in the FairTax Plan is the repeal of the 16th Amendment to the Constitution.  The FairTax allows Americans to keep 100 percent of their paychecks (minus any state income taxes), ends corporate taxes and compliance costs hidden in the retail cost of goods and services, and fully funds the federal government while fulfilling the promise of Social Security and Medicare.

Americans take home their whole paychecks.

Not only do more Americans have jobs, but they also take home 100 percent of their paychecks (except where state income taxes apply).  No federal income taxes or payroll taxes are withheld from paychecks, pensions, or Social Security checks.

The prebate makes the FairTax progressive.

To ensure no American pays tax on necessities, the FairTax Plan provides a prepaid, monthly rebate (prebate) for every registered household to cover the consumption tax spent on necessities up to the federal poverty level.  This, along with several other features, is how the FairTax completely untaxes the poor, lowers the tax burden on most, while making the overall rate progressive.  However, the FairTax is progressive based on lifestyle/spending choices, rather than simply punishing those taxpayers who are successful.  Do you see how much freer life is with the FairTax instead of the income tax?

No tax on used goods.  The amount you pay to fund the government is totally visible.

With the FairTax you are only taxed once on any good or service. If you choose to buy used goods − used car, used home, used appliances − you do not pay the FairTax.  If, as a business owner or farmer, you buy something for strictly business purposes (not for personal consumption), you pay no consumption tax.  The FairTax is charged just as state sales taxes are today.  When you decide what to buy and how much to spend, you see exactly how much you are contributing to the government with each purchase.

Retail prices no longer hide corporate taxes or compliance costs, which together drive up costs for those who can least afford to pay.

 

Did you know that income taxes and the cost of complying with them currently make up 20 percent or more of all retail prices?  It’s true.  According to Dr. Dale Jorgenson of Harvard University, hidden income taxes are passed on to the consumer in the form of higher prices for everything you buy.  If competition does not allow prices to rise, corporations lower labor costs, again hurting those who can least afford to lose their jobs.  Finally, if prices are as high as competition allows and labor costs are as low as practical, profits/dividends to shareholders are driven down, thereby hurting retirement savings for moms-and-pops and pension funds invested in Corporate America.  With the FairTax, the sham of corporate taxation ends, competition drives prices down, more people in America have jobs, and retirement/pension funds see improved performance.

The income tax exports jobs, not products.  The FairTax brings jobs home.

Most importantly, the FairTax does not burden U.S. exports the way the current income tax system does.  The FairTax removes the cost of corporate taxes and compliance costs from the cost of U.S. exports, putting U.S. exports on a level playing field with foreign competitors.  Lower prices sharply increase demand for U.S. exports, thereby increasing job creation in U.S. manufacturing sectors.  At home, imports are subject to the same FairTax rate as domestically produced goods.  Not only does the FairTax put U.S. products sold here on the same tax footing as foreign imports, but the dramatic lowering of compliance costs in comparison to other countries’ value-added taxes also gives U.S. products a definitive pricing advantage which foreign tax systems cannot match.

The FairTax strategy is revenue neutral:  Neither raise nor lower taxes.

The FairTax pays for all current government operations, including Social Security and Medicare.  Government revenues are more stable and predictable than with the federal income tax because consumption is a more constant revenue base than is income. If you were in a 23-percent income tax bracket, the federal government would take $23 out of your paycheck for every $100 you made.  With the FairTax, if the federal government gets $23 out of every $100 spent in America, the same total revenue is delivered to the federal government.  This is revenue neutrality.  So, instead of paycheck-earning Americans paying 7.65 percent of their paychecks in Social Security/Medicare payroll taxes, plus an average of 18 percent of their paychecks in federal income tax, for a total of about 25.65 percent, consumers in America pay only $23 out of every $100.  Or about 30 percent at the cash register when they elect to spend on new goods or services for their own personal consumption.  And this tax is collected only on spending above the federal poverty level, providing important progressivity.

Tax criminals don’t make criminals out of honest taxpayers.

Today, the IRS will admit to 16 percent noncompliance with the code. FairTax.org will be generous and simply take the position that this is likely a conservative estimate of the underground economy. However, this does not take into account the criminal/drug/porn economy, which equally conservative estimates put at one trillion dollars of untaxed activity.  The FairTax does tax this – criminals love to flash that cash at retail – while continuing to provide the federal penalties so effective in bringing such miscreants to justice. The substantial decrease in points of compliance – from every wage earner, investor, and retiree, down to only retailers – also allows enforcement to concentrate on following the money to criminal activity, rather than making potential criminals out of every taxpayer struggling to decipher the current code.