Fair Tax Complaints II

Some additional Fair Tax complaints ...

5. The Tax Would Be Too Hard to Collect
Sales tax is already collected in 45 of the 50 States. The legislation allows for the States to retain a portion of the money collected to pay for the collection, reporting, and enforcement of the law. Whatever the extra burden or cost may be to an individual State, it will be paid for from the revenues generated ... there will be no additional burden, other than the Fair Tax itself, imposed on the individuals living in any State.

6. The Rate Would Need to be Higher than 23% in order to Fund the Government at its Present Level
The Fair Tax has been developed to be revenue-neutral. This means the rate was set at that level which guaranteed the Federal Government would receive the same revenue it currently receives via the taxes that would be eliminated once the Fair Tax was adopted. Remember, the Fair Tax plan was developed by economists, not politicians. Additionally, since the Fair Tax plan was initially proposed, the revenues it would have raised at 23% have met or exceeded the revenues actually raised via the proposed eliminated taxes. Based upon the state of the economy at the time the plan is adopted, the rate may very well be less than 23%.

7. I Pay Less Than 23% in Taxes Now
Most likely, this is not the case. The income tax bracket most people fall into is 15%. Add the 7.65% in payroll taxes that everyone pays and you're right at 23%. Then, you need to add in all of the hidden taxes embedded in the price of everything you buy now, from goods (averaging 22%) to services (averaging 25%). Because the 23% Fair Tax will not be imposed on spending up to the poverty level, an individual spending $28,800 would pay an effective tax rate of only 15.6%, not 23%. Today, this individual would pay 17.3% of their income in taxes.

8. Cheating Will Be Rampant
Americans have been cheating on their taxes ever since there were, uh, taxes. Cheating on your income taxes now only requires that you, individually, do something ... or, actually, not do something. Cheating on the Fair Tax will require two parties to conspire - you, the buyer, and the retailer. Because there will not be less tax filers (only retailers and service providers, rather than every citizen plus these sellers), there will be less folks to monitor to ensure compliance. Plus, these businesses are already reporting their sales ... nothing changes for them.

9. This Will Never Pass Congress
There used to be a lot of things that people thought would never happen - Women getting the right to vote, the Berlin Wall and the Soviet Union collapsing, free elections in Muslim countries. While passing the Fair Tax won't be easy, neither was any of these earth-shattering events. But, they did happen. And the Fair Tax can be passed if the PEOPLE want it! Congressmen and Senators are interested in keeping their jobs. If we, the PEOPLE, make the Fair Tax one of our priorities when we decide who to vote for, the candidates will listen. And if they don't make good on their promises, we need to toss them out of office until we find someone who will. If we all sit back and wait for someone else to do something, nothing will get done.

Visit the Americans for Fair Taxation website to see what you can do to ensure this absurd system of penalizing achievement and productivity is abolished.

Fair Tax Complaints I

Let's take a look at some of the complaints that have arisen to the Fair Tax ... and see if there's any validity to this opposition.

1. The Tax Rate is Really 30% Not 23%
To this argument we simply say, well then, the 28% income tax bracket is really a 39% bracket. Regardless of how you want to calculate the percentage, for each $100 you spend at the retail level, $23 of that purchase is the Fair Tax.

2. Retail Prices Will Rise By 23%
Actually, retail prices shouldn't change much at all ... in fact, in some cases, they may actually drop. Why? Because everything you currently buy includes between 20 and 26% embedded taxes. Embedded taxes are that portion of the price of a good which is the direct result of the person selling and manufacturing it having to pay business income and employee payroll taxes. Once the Fair Tax is in place, neither the retailer nor the manufacturer will be paying these taxes. Therefore, their production costs will decrease. While they may try to keep their prices the same and "pocket" the difference, competition will quickly do away with this. Two recent examples demonstrate this. A couple of years ago a particular federal tax on the airline industry expired. At first, the airlines kept their prices where they were, even though they no longer needed to pay this tax. Then, one airline decided to lower their prices by the amount of this expired tax. Within hours, all the airlines had followed suit. More recently, one automobile manufacturer started offering "employee pricing" - offering their vehicles at the same discount price their employees received. How long was it before all of the major manufacturers were offering this same deal? Two weeks ... maybe three? Competition will drive down the prices and, when the Fair Tax is added to these lower prices, the net result should pretty much be a wash. Prices should remain at their current levels under the Fair Tax.

3. The Fair Tax would place a horrible burden on the Poor
Absolutely and completely false. Let's take a look at the poor ... those living below the poverty level but that actually have jobs. While they may currently pay absolutely NO income tax, they still pay Social Security and Medicare taxes. Under the Fair Tax, these taxes are eliminated so, as a start, the poor will get an increase in their take-home pay. And, if their employer chooses to pay them the employer's share of these taxes, they'll get an even bigger pay increase. Next, the poor will get a Fair Tax Rebate on all of their spending up to the poverty level. So, to summarize, under the Fair Tax a person living below the poverty level will pay ABSOLUTELY NO TAX!

4. The Fair Tax would place a horrible burden on the Elderly
Also bunk. For starters, the elderly would start to receive the rebate on their spending up to the poverty level. For those elderly who are receiving distributions from IRAs or 401(k) plans ... guess what? These distributions will be completely tax free under the Fair Tax. Right now, they have to pay income taxes. So, what about those who are only receiving social security benefits? They don't pay any income taxes on these funds. For them, they'll still pay no income taxes under the Fair Tax but, as we mentioned above, they'll also be receiving the rebate on their spending up to the poverty level. So they'll have more cash in their pockets, too.

More to come in my next post.

Tax Plan Comparisons

So far we've introduced the Fair Tax and talked about the monthly rebate. Now, let's compare the current system with the Fair Tax ... and, just for fun, let's include the Flat Tax as well.

To be honest, others have done the comparison in much more detail than I ever could and I would refer you to two links at the end of this post for a side-by-side comparison. What I would like to do is to discuss some of what I see as the most appealing points.

1. Bye-bye Internal Revenue Service
As much as we'd like to see the IRS just go away, it won't happen with any of the three plans. However, under the Fair Tax plan, the IRS will be much smaller and only be positioned to administer the collection of the National Retail Sales Tax (NRST) revenue from the individual States. The IRS will NOT be seeking out individuals.

2. Complexity and Cost of Compliance
With the Fair Tax there is no complexity or cost of compliance ... zero. Everything you buy at the retail level will be taxed ... how's that for simplicity. And, there are no forms to file ... none! The cost to comply with filling out no forms? Zero! While the cost to comply with a Flat Tax would be significantly less than it is today, there still would be some costs - after all, you would still need to file a return. The Fair Tax is the only alternative of the three which totally eliminates any cost of compliance.

3. Your Money Is Now Really Your Money
Ever found yourself in a bind where you need some short-term cash and the only place to get it is by taking it from your IRA or 401(k) plan? I've been there. And what happens if you pull some dough out of one of these accounts? Excessive tax? Penalties? You bet! Guess what? With the Fair Tax this completely goes away. First, there is no such thing anymore as pre- or post-tax income. There's just income. Second, you can put as much away for retirement as you want - without having to worry about potential penalties if you need to pull some money out before retirement age. Third, when you do pull money out of these accounts, guess what? It's tax free ... until you spend it.

4. Congress Can Still Muck Things Up
The proponents of the Fair Tax are also advocating the repeal of the 16th Amendment to the Constitution. This would forbid the imposition of an income tax by Congress. Keeping the current system or moving to a Flat Tax, however, still allows Congress the ability to muck with the tax code, providing breaks, or "incentives" as they like to call them, to their favorite special interest group. When the tax code was simplified in 1986 we, essentially, had a two-tiered flat tax system. Since then the tax code has been modified over 10,000 times by Congress! Most of these modifications go unnoticed by the Average Joe. The Fair Tax has only one number ... and everyone knows what it is. If Congress starts to muck with this number ... everyone will know about it.

I encourage you to take a look at these comparison links. The information is basically the same, just presented in a different fashion.

- Americans For Fair Taxation
- Congressman John Linder

In my next post, we'll take a look at some of the complaints that have been levied against the Fair Tax ... and blow most of them out of the water.

Fair Tax Rebates

In my last post I introduced the Fair Tax - the replacement of the current income tax system with a national retail sales tax (NRST). Part of this plan includes a rebate, actually, a pre-bate. In this post, we'll discuss this important issue.

The purpose of the rebate is to prevent the imposition of the NRST on life's basic necessities. The rebate will allow for the purchasing of necessary items, such as food, clothing, medicine, shelter, without the burden of an included tax. The size of the monthly rebate will be determined by the government's published poverty level index for a particular household size, multiplied by the tax rate.

For example, using the Department of Health & Human Services’ poverty level index, a married couple with two children spends $25,660 per year on the basic necessities of life. What the rebate does is refund the amount of the NRST on this $25,660 in equal monthly payments. If the tax rate were 23%, then $5902 of this $25,660 would be tax. When divided by 12 months, this results in a monthly rebate of $492. If your family is bigger or smaller, the rebate would change accordingly. And the best thing, in my mind, about this rebate is that it applies to every household. So a household of 4 making $100,000 a year gets a monthly rebate of $492. A household of 4 making $50,000 a year also gets a monthly rebate of $492.

A couple of standard questions usually come up at this point?

1. Why not exempt things like food or medicine rather than provide this rebate?
While food and medicines and clothing are certainly necessities of life, they're only necessary up to a point. Someone who is in the habit of frequently entertaining guests is certainly purchasing more food than is necessary for their household. Should all of this "extra" food be exempt from the tax? Likewise, some folks like bluejeans, some folks like Pierre Cardin. Should someone who buys expensive clothing far and above what they "need" get these things tax exempt? Most would say no. So, rather than relying on some subjective source (such as a retailer) to say this is necessary and this is excessive, the rebate is used to equalize the playing field. Also, exempting one type of product and not another opens up the issue of Congressional meddling ... just like in the present tax system. Some interest group will lobby for their products to be tax exempt and the tax code will be adjusted here and there and pretty soon we've got just as big a mess as we have now. With no exemptions and a rebate, all retail items are equally subjected to the NRST.

2. How will the rebates be distributed?
With 21st Century technology, the methods of distributing this rebate are quick and efficient. The government already distributes social security benefits to millions of recipients via direct deposit and mailed checks. Welfare benefits are paid using incremental debit cards - i.e., each month the balance on the card is incremented by that month's benefit. There's no reason to believe that the rebates provided under the Fair Tax plan can't, and won't, be distributed using these same methods.

Convinced yet?

Well, to help you along in your transition, my next post will do a quick comparison of the Fair Tax, the Flat Tax, and the current Income Tax.

What is the Fair Tax?

As a start, let's first define what the Fair Tax is. It's a national retail sales tax (NRST) on everything purchased, goods and services, at the retail level. So, when you buy a newspaper, groceries, landscape services, beer, gasoline, a home, ... whatever you purchase, this NRST will be included. And I say "included" rather than "added." This is meant to be an inclusive tax ... the price of the goods or service will include the tax, much in the way the state and federal taxes on gasoline and cigarettes are currently applied.

There are a few exceptions, the NRST is NOT applied to:

• The purchase of used goods.
• Business-to-business purchases (i.e., raw materials or equipment) used in the production of other goods and services.
• Expenditures for Education (i.e., college, private school, community college classes, etc.)

This NRST will replace the following taxes:

• Personal Income Tax
• Self-Employment Tax
• Corporate Income Tax
• Employment Taxes (i.e., Social Security, Medicare - both Employee and Employer portions)
• Estate Tax (i.e., Inheritance or "Death" Tax)
• Gift Tax
• Capital Gains Tax
• Alternative Minimum Tax

The plan is designed to be revenue neutral, which means the rate would be set so that the amount of revenue received via the Fair Tax would be equal to the revenue currently received via the above listed taxes that would be replaced. And, what is this rate? The last time the rate was calculated it was estimated to be 23%. So, if you bought something for $100, $23 of that would be for the NRST. Remember, the NRST is inclusive, so the $23 would NOT be added to the $100, it would be included.

From the perspective of the average Joe, what would this change mean?

First, you would automatically get a pay raise. There would be no federal income tax or social security or medicare taxes taken out of your paycheck. So, while your gross income would remain the same, your net, or take-home-pay, would immediately increase. And, now that your employer is no longer paying their share of social security and medicare costs, your gross pay may increase as well.

Second, there would be no income tax return to file. When April 15th rolls around ... there's nothing you have to do. No records to keep, no forms to fill out, no tax software or accountant services or H&R Block. How great would that be?

Third, the concept of before and after-tax expenditures would be gone. There would be no need for a health care or dependent care expense account. Likewise, there would be absolutely no chance of losing funds placed into these accounts because you didn't spend them all. Also, any money you choose to set aside for retirement or other investment purposes would no longer be subject to, what many see as arbitrary, government restrictions or penalties for unauthorized withdrawals. Your money is now yours, with no strings attached. You can use it when and how you wish ... without the government butting into your spending decisions.

Fourth, you'd be paying the NRST on every purchase of a new good or service at the retail level.

Fifth, you'd be receiving a monthly pre-payment from the federal government to reimburse you for the amount of NRST you would be expected to pay in the coming month on the basic necessities of life.

Yes, you read that last one correctly, the federal government will be advancing you the cost of the NRST on the basic necessities of life ... and that will be the topic of my next post.

Lobbying Reform Starts with Tax Reform

The recent stories in the media regarding lobbyist Jack Abramoff have raised the issue of "Lobby Reform." Rather than put rules and regulations on the activities of lobbyists, it would seem more practical to address the cause rather than the symptom ... our tax code.

Let's be honest, what are most of these lobbyist doing? They're petitioning members of Congress on behalf of their clients for favorable treatment ... primarily where tax issues are concerned. What would happen if there was no income taxes, employment taxes, or corporate taxes? What if there was some other way of raising revenue for the federal government that didn't provide Congress with the opportunity to favor some over others? Wouldn't that be great?

Well, hope is on the horizon. Congressman John Linder of Georgia is the author of HR 25, Fair Tax Act of 2005 (enter "HR 25" as the bill number). This bill eliminates the aforementioned taxes and replaces them with a national retail sales tax ... a tax on consumption, not a tax on productivity.

Another good source of information is the Americans for Fair Tax website.

In the next few weeks I'll be adding a series of posts on this important subject. I think you will find the benefits of such a tax system fascinating ... for young and old, rich or poor, black or white, or whatever. Stay tuned.

Choices & More Choices

For a time I worked in Washington, DC. When the weather was nice, I'd take a walk around the eastern section of the mall, between the Capitol and the Smithsonian Castle. On one particular Monday, I noticed dozens of piles of trash. Piles that were, literally, six to eight feet high. And what was in these piles ... protest signs from a "pro-choice" rally that had been held over the weekend. Hmm ... pro-choice, eh? Obviously choices are good, right? But what kind of choices were these protesters supporting?

On my way back to the office, I picked up a copy of the Washington Post. I would have prefered the Washington Times, but the newstand in the lobby of my building was all out. So, I did a little research and found out the choices these protestors were in favor of was, essentially, that a woman should have the "choice" of terminating their pregnancy at any time and for any reason. My first thought was, "At any time?" How about just before the doctor's going to deliver a full-term child? Yeah, they want to be able to choose to do that. In fact, they even want to be able to terminate the pregnancy while the child is in the process of being born. That sounded not only messy, but just downright cruel. Forget about the potential pain and suffering to the child, but to snuff out the child's life, just as it has finally seen the light of day (I seem to remember my children being born head first) after struggling to grow and survive for nine months in the womb ... this sudden extinction seems to be terribly tragic. It would be like Lance Armstrong being hit by a bus just as he was about to cross the finish line of the Tour de France.

Now, if I remember correctly from my days in health class in junior high school, pregnancies don't just happen on their own ... unless you believe that story about Mary and the Holy Ghost. If my memory serves me right, usually two people (preferably a man and a woman) engage in a particular activity that results in the exchange of a particular bodily fluid. When this fluid is combined with an egg in the woman's womb ... walla ... a baby has been started on its road to personhood. I also remember from health class that there were things this man and woman could do to ensure this particular activity did not result in the fluid and egg getting together. If I recall, this was something that needed to be done BEFORE this particular activity should be commenced. It's sort of like the Vikings of old ... pillage THEN burn. If you burn first, there's nothing to pillage. If you engage in the activity without making preparations, then it's too late to prevent this fluid-egg hookup.

Now, I understand that accidents happen. I hit a deer on my way home from work a couple of months ago. I didn't plan it and there was very little I could do to avoid it. It was some honking deer ... with antlers and everything. Even though I try to take precautions when I'm driving, no method of driving is completely foolproof. Sometimes that deer just wants to be hit. Likewise, sometimes the precautions taken prior to engaging in sexual intimacy just don't work. Things break or leak or the drugs don't fully counteract mother nature or whatever. Accidents do happen. And like my encounter with the deer, responsible adults who are involved in accidents have to take responsible actions. If I wish to drive at night on country roads, then I am accepting the risks that go with that - namely prancing wildlife. If I wish to engage in sexual activity, I need to accept the risks that come with it. I can try to mitigate the risks in both situations, but I'll never be able to totally eliminate them, except by abstaining from the aforementioned activities. Don't worry, we're not going there.

So far we have talked about a number of choices ... let's see, there's the choice to engage in the activity or not to engage in it as well as to either take precautions or not to take precautions. There's two choices. Now, regardless of the second choice, let's say the baby is in the oven. What are our choices at this point? Again, we really only have two choices - keep the baby until it's done or terminate it. If one chooses to terminate it, that's the end of the choices. All gone, done, finished. But, for those who wish to be "pro-choice," I would think they'd want to keep the baby until it's done so that they can make more choices. Okay, so the baby is born and then we have another choice - keep it or give it to someone else. If we give it to someone else, again, that's the end of our choices. If we keep it, then the proud parents can be introduced to the lovely world of raising a child and the, literally, thousands of choices that come with this activity. Choices like cloth or disposable, bottle or mommy, peas or carrots, paper or plastic, car or truck, Yale or Harvard, etc., etc. What a wonderful opportunity for someone who is "pro-choice." Until such time as you, or your child, are dead and gone the choices will just keep coming. How simply marvelous!

Uh, Steve ... I think you've missed the point here ... while these people say they're "pro-choice" it doesn't mean that they're in favor of having an endless string of choices to make concerning their offspring. They pretty much want to have the choice of either having the baby or terminating the pregnancy. That's really about it. Okay?

Oh ... okay. Let's see if I understand. They pretty much want to be able to terminate the pregnancy just because they want to ... right? It might be a girl and they wanted a boy ... or they might not have wanted to get pregnant in the first place ... or it's a financial hardship or an inconvenience or whatever ... it just doesn't really matter. Right?

Yeah, I think you've got the idea now.

Okay, well, I might be able to think of a few instances where this might be justified. Say, if the pregnancy results from incest or rape or if continuing the pregnancy might put the life of the mother at risk. I would even think, what with the latest technology we have, that if we knew early the baby was deformed or retarded or had some other serious medical issue that this might be a valid justification for terminating a pregnancy as well. I would never wish on someone the task of raising a special needs child ... especially in those instances where the child doesn't have much of a life due to its handicap. But, to allow someone to terminate a normal, healthy pregnancy just because they feel like it is pretty ridiculous. And, as we've already said, once the baby is born there yet another choice to make - keep it or give it away. And, given how widespread the problem of infertility seems to be in our society, you would think there would be dozens, if not hundreds, of couples or individuals who would be just dying to adopt a healthy infant. Right?

And some of these folks trying to adopt would probably be willing to help pay the mother's prenatal and delivery expenses ... not to mention a nice chunk of change to assuage the mother's "pain and suffering." So, potentially, a win-win situation.

So, why don't more people who find themselves in this situation do just that ... put the babies up for adoption?

Good question. I think a lot of it has to do with the easy access and availability of birth control counselling - counselling which usually almost always includes abortion as a solution but not necessarily adoption. Plus, the adoption solution requires the mother to actually do something ... carry the baby for 9 months. There's no immediate gratification.

I've also heard that some folks are even opposed to waiting periods or parental or spousal notifications prior to an abortion being performed. Isn't it worth taking a day or two or a week to really think about the decision to terminate a pregnancy?

One would think so. If you get a home mortgage, for instance, you've got three days to reverse your decision. Since you can't reverse an abortion, taking three days to think about it certainly seems reasonable.

Hey, I just thought of something. If these folks are so "pro-choice," what choice have they given to the baby in question? The baby didn't "choose" to be conceived ... it wasn't their fault they were conceived ... yet they're the ones that would suffer, right?

Yes, them and society as a whole as we let folks indiscriminantly "terminate" pregnancies. It almost sounds like Texas justice ... "they needed killing."

Black Republicans

I've never quite been able to figure out why most Blacks vote for political candidates who are Democrats. Even a review of just a little political history would seem to, logically, point to Blacks overwhelmingly supporting Republicans.

1. Slavery
It was the Democratic party of the 1840s and 1850s that wanted to allow the spread of slavery into the new territories of the western United States. It wasn't until the Republican party, specifically formed to abolish slavery, became a national party in the 1860s that slavery was eliminated.

2. Jim Crow South
After the Civil War and Reconstruction were ended in the 1880s, Democrats came back to power in the South. And with them came the concept of "separate but equal" and all those wonderful Jim Crow laws that, essentially, removed millions of Blacks from the voting rolls and placed them into, again, a virtual state of slavery.

3. Civil Rights
What party was it that filibustered Civil Rights legislation in the 1960s? Why it was former Ku Klux Klan member Robert Byrd and his Democratic colleagues in the Senate. If it weren't for Republican support, this legislation never would have become law.

4. Martin Luther King, Jr. & Affirmative Action
Wasn't it Martin Luther King Jr. who said "I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character."? I think so, yet the Democrats are the strongest purveyors of Affirmative Action which says that we should essentially judge people, not by their ability or character, but by their ethnic heritage.

Right after the Civil War, most Blacks did vote Republican. Many of the southern States, Georgia and Louisiana among them, had Black Republican Governors. What has happened in the last 150 years to cause Blacks to migrate to the "gimme" party? My personal opinion is that it's the next generation of "Civil Rights Leaders," such as Jesse Jackson and Al Sharpton, who have made the Blacks out to be victims. Victims who can't be raised out of the current situation except with the assistance of government tax dollars and the "dummying down" of everyone else. Rather than raise up everyone, these clowns would rather have everyone pulled down ... sound like a typical Democratic campaign slogan? You know, punish the rich rather then raise the poor. And when Black leaders like Bill Cosby or Lt. Gov. Michael Steele (MD) speak out about the need for personal responsibility in the Black community, they get ridiculed, heckled, and pelted with oreos. Even on an issue such as helping the homeless, Democrats are willing to impede assistance because the one bringing the assistance happens to be a Black Republican.

For those Blacks who think that I, as a White Male, am completely full of it, I would point you to a number of Black columnists, such as Thomas Sowell, Larry Elder, and Walter Williams. Read what they have to say on these issues and, if nothing else, make the Democrats earn your votes because of their policies, not because they'll give you the most sympathy by making you feel like a vicitim or the most money by stealing it from others. As a for instance, ask the Democratic leadership what they're going to do about social security. Because the average Black Male life expectancy is lower than the age at which you can receive full benefits, the majority of contributions made by them ends up going to those with the longest life expectancy: White Females.