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The
other day information began circulating in the email news
groups regarding a great new tax proposal called the Fair
Tax. Representative Richard Linder (R-GA) is the lead
sponsor of the legislation: H.R. 25 - “The Fair Tax Act of
2005”.
For
reasons that will become obvious, there is big money backing
for this proposal. According to House Ways and Means
Committee member, Kevin Brady (R-TX) at
a rally in Houston led by Tom Delay1, this proposal
originated in Houston. Brady made the statement, “First,
let me thank Tom Delay for his leadership. As in everything
important, nothing of significance occurs in America today
without Tom Delay’s leadership and abolishing the IRS and
replacing this income tax code is going to need his
leadership so we also Thank God for Tom Delay”.
The
marketing of this plan is well underway. A PAC,
‘Americans for Fair Taxation’2 has been established, a
book written by Neil Boortz titled “The Fairtax Book” is
being marketed, and my suspicions were confirmed that Aaron
Russo’s documentary, ‘America: Freedom to Fascism’ on the
unconstitutionality of the 16th amendment was a
propaganda movie to generate grassroots support for
elimination of the income tax for an unstated, underlying
purpose. The timing of the movie is just too coincidental
to the marketing of the Fair Tax proposal for the movie and
the Fair Tax proposal to not be related. The confirmation
for me was on the
‘Americans for Fair Taxation’ website3:
"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."
The
Fair Tax plan proposed is to eliminate the IRS and the
income tax system - all to be replaced by a 23% ‘inclusive’
consumption tax (sales tax) at the retail level. All
households will receive a prebate check from the government
based on poverty level income to ensure that the basic
necessities of life are ‘untaxed’.
Admittedly, the
Fair Tax campaign4
has a lot of appeal if you are foolish enough to be
satisfied with the marketing sound bites:
The
FairTax:
-
Abolishes the IRS
-
Closes all tax loopholes and brings fairness to
taxation
-
Maintains our current Social Security and Medicare
benefits
-
Brings transparency and accountability to tax
policy
-
Allows American products to compete fairly
-
Reimburses the tax on purchases of basic
necessities
-
Enables retirees to keep their entire pension
-
Enables workers to keep their entire paycheck
However, if you take the time to listen to the
audio and video programs that are
linked on the Fair Tax website5, you will be
‘shocked and awed’ yet again. If you only listen to one
program, the suggestion would be that you listen to the
audio program of the
House Budget Committee hearing that was held on 10/6/20046.
The following is a summary of the information that came out
during that hearing:
-
The 23% ‘inclusive’ sales tax rate is actually
30%. They deceive supporters using mathematical
trickery. Assume you are going to buy a $10.00
item. The sales tax rate will be 30% making the
total $13.00. They then use the $3.00 tax as a
percentage of the $13.00 total to come up with the
23% rate. 3.00 / 13.00 = .23 That’s the
reason for the ‘inclusive’ qualifier on the tax
rate they give.
-
The Free Tax people claim the prebate check
‘untaxes’ basic essentials to the poverty level is
paid to all households. This means that Bill
Gates and Warren Buffet will receive a prebate
check in the same relative amount as the poorest
households in the country. The Fair Tax people
neglected to consider the losses in income on the
poorest of citizens by the elimination of the
earned income tax credit, the refundable child
care tax credit, the dependency care tax credit
and the hope and lifetime learning tax credit.
This results in an annual decrease in household
income on the poorest households - those
qualifying for the earned income tax credit - of
over $4,000 per year.
-
All taxes paid by corporations will be
eliminated. Consumers will pick up the difference
in lost revenue through the sales tax.
-
Using their numbers - without the deceit, a 30%
sales tax will be applied to the purchase of all
‘new’ goods and ALL services. If you buy a
$20,000 new car, the price will be $26,000 with
$6,000 sales taxes. If you buy a new home for
$100,000, with the sales tax, the price of that
home will be $130,000 with $30,000 going to the
government for sales taxes. But wait… that’s not
all. Sales tax will also be charged on the
interest of your mortgage payment. But wait…
that’s not all. Insurance will be taxable under
this system so add 30% more onto your homeowner’s
insurance. And, of course, your mortgage
deduction is gone because the income tax system is
gone under this program. If you buy a used home
or a used car, there won’t be a sales tax on it
but the mortgage interest sales tax and the
insurance sales tax still apply.
-
All consumer purchases will be taxed at 30%. Your
food, medications, gas, electric bill, phone bill,
water bill, etc. will all increase by 30% to pay
the sales tax. If you hire a painter to paint
your house, he will be required to collect the 30%
sales tax on the service. If you go to a dentist
- or God forbid, you get sick and have to go to
the hospital, 30% will be tacked on the bill for
the sales tax - and you can bet that your medical
insurer won’t pay the sales tax as a part of your
benefits package - if you are lucky enough to have
medical insurance - which by the way, will be
taxed at 30% and of course - no deductions for
medical insurance because there is no income tax
to deduct from.
-
Rent will be taxed at 30%. Federal government
services that you consume - including those
provided to veterans will be taxed. The only
non-taxable expenditure that I heard during the
full three hours of the hearing was that education
expenses would be exempt on the theory that
education is an investment.
-
The 30% is exclusive of the state income, sales
and property taxes you now pay. It would be in
addition to those taxes. The federal sales tax
would be collected by the states with the Fed’s
‘generously’ giving them a ½ of 1 per cent payment
for the collection service. Since state income
tax system were designed to parallel the federal
income tax system, the Fair Tax if implemented,
would virtually force states to go to an all sales
tax system paralleling the federal sales tax
system which would raise the effective sales tax
rate to anywhere between 50% and 80% depending on
where you live and whose numbers you use.
-
As if all of this weren’t bad enough, state and
local governments would be required to pay federal
sales tax on all their purchases and they would be
required to collect a sales tax on all services
provided to the citizens in their localities.
That means if you have to call a cop or the fire
department, you will be charged for the service
and the sales tax will be applied on top. Even if
the cost of the service isn’t charged directly to
the consumer, the sales tax will be applied to the
locality’s calculated cost of the service and you
would pay that amount for the federal sales
tax.
-
They included a provision for the federal
government to pay sales tax to itself on all
spending including defense, all procurement and
presumably inter-departmental chargebacks. On the
surface, you would say that’s silly because it
would net to zero. But because they used a
different treatment of prices on the revenue side
than they did on the spending side, it resulted in
a $500 billion discrepancy that would have to be
corrected if the Fair Tax system were to be
adopted. This means that the 30% sales tax would
have to be increased to cover the $500 billion
shortfall. To understand the differential
treatment, you have to keep in mind that all tax
reform proposals have to be revenue neutral. The
Fair Tax people assume that for every dollar you
spend currently on goods and services, there is an
embedded 22% overhead cost to cover income and
payroll taxes. When they calculated the
government spending side of the equation for
revenue neutrality, to maintain current programs
they assumed prices would decline 22% due to the
elimination income and payroll taxes. When they
calculated the revenue side of the equation, they
assumed that prices would remain fixed at the
current levels, which includes the embedded 22%
overhead. The result of the differential
treatment of prices on either side of the equation
results in the $500 billion discrepancy.
-
And of course, no
discussion of reform plans would be complete
without noting the benefits to Tom Delay’s upper
income constituency. At an income level of about
$135,000 the tax liability for the wealthy begins
to decline from current levels. So when you hear
the Fair Tax proponents claim that the sales tax
is a ‘freedom tax’, you will know that it means
freedom from taxes for the wealthy with the
corresponding immoral and unconscionable
redistribution of the tax burden America’s poor
and middle classes. It would not be hyperbole to
call the Fair Tax plan a ‘slave tax’ on the
majority of Americans.
That
should be an adequate overview of what Tom Delay and his
crew consider to be a ‘Fair Tax’. The reasons tax reform
proposals are being discussed now will be included in Part
II of this article.
Congressional Budget Hearing - Recordings, May be some
overlap on files
12/8/2009
- note, the budget hearing is no longer available on the
Congressional Website. The following are recordings of
it that I made while I was preparing this paper. I
hope they are complete and don't overlap too much. I
posted them quite long after the fact once I discovered that
the hearing was no longer available.
First 30
minutes
Next 1 hour 30 minutes
Third
Hour
Final
Hour
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