Everybody hates the IRS during tax season, except for the 85 percent of Americans who get a refund.
In fact, 47 to 51 percent of people who file income tax returns do not even pay income tax, according to the Tax Foundation in Washington, D.C. They file tax returns to get the generous Earned Income Tax Credit (EITC) and the Child Tax credit for households with children. A worker with three children and an income of $12,750 can get a refund of $8,751 from these credits, and without any payroll withholding.
In essence, the income tax has become one of America’s largest welfare programs.
Bribed with Our Own Money
The payroll withholding system was created in 1942 to make working families pay for the war against Japan and Germany. Milton and Rose Friedman’s autobiography has an excellent story about how “pay as you go” was set up to make sure workers paid the higher war taxes.
Before the war, only wealthy people had to file tax returns, because most people’s incomes were less than their personal exemptions. But Congress and the War Department needed more money, so tax collections expanded. Collecting the money in advance, with payroll withholding, was a quick solution.
Today, since most people live on narrow budget margins, with little surplus from week to week, it can be stressful to owe the IRS a balance due on April 17. To avoid that stress, your paycheck tax withholding can be a bit larger each payday, and the surplus is returned in the form of a tax refund the following February. Some people use this refund as a form of a savings account, by splurging on something they normally wouldn’t with the unexpected money.
However, what many do not realize is that the payroll withholding tables published by the IRS for employers are actually tilted to give workers a refund. So, if a family of four chose four allowances on the W-4 form, which employers use, the formula the payroll department uses will guarantee a surplus, and thus, a refund next February.
This means that the withholding system bribes taxpayers with their own money to file tax forms on time, even early, to get their money back.
The EITC and the Child Tax Credit cause a mania among the lowest income Americans, who come to H&R Block and other tax companies as soon as their W-2 forms are released – because the refunds that include those tax credits are very generous.
The FairTax “Prebate” Is Worse
You might have heard of the FairTax, as its popularity was expanded during the brief presidential campaign of Herman Cain in the Republican debates, when he proposed his “9-9-9” version. Radio talk show host Neal Boortz also wrote on the subject in books that were on the New York Times best-seller list for several months in 2005 and 2008. And there has been legislation introduced in the Senate and House of Representatives to enact such a national sales tax—and many Congressmen are co-sponsors. It is a cheap thing for a member of Congress to co-sponsor such a bill, since it is very unlikely to pass. Boortz is based in Georgia, and the legislation’s chief sponsors are from that state.
FairTax.org and popular writers like Neal Boortz have promoted the FairTax as a way to get rid of the IRS and liberate Americans from the oppressive tyranny of government tax collections. However, take a closer look and you’ll find it is almost exactly the opposite kind of scheme than it claims to be.
If enacted, the FairTax would require every American to be registered with the IRS and keep a current address and bank account information on file with the government to receive regular tax “prebates.”
The FairTax is a national retail sales tax. And a national retail sales tax is a flat tax. Sales tax rates, which most states impose, are flat rates on all transactions subject to the tax. Some states tax goods and services; other states only tax goods sold at retail and exempt wholesale and intermediate products. A value-added tax is a sales tax that does not exempt intermediate products, but allows a rebate on subsequent sales for producers, so the tax is not compounded over many stages of production.
The FairTax is supposed to be a tax only on final sales, although it is sometimes not clear when a sale is “final” and not part of a continuing series of production steps.
The problem with a flat tax, in today’s political society, is that most people believe “the rich” should pay more and “the poor” should get tax credits and exemptions, particularly if they have children.
But a flat tax is the same rate for everyone.
Another problem with a retail sales tax is that it only taxes items purchased for consumption. It does not tax savings. Higher income families have savings for retirement and college funds, while lower income families are always in debt. The sales tax would exempt savings and collect taxes even when a family borrows money to buy a new TV or repair an old car.
So if you believe a family’s “income” is the proper way to think about tax rates, a sales tax is “regressive.”
The solution proposed by advocates of the FairTax is a rebate. They call it a “prebate” because the plan would give a rebate in advance to every American family. The families would be paying the national sales tax every day, at the grocery store and the gas station, so it would be hard for them to wait until next year to get a rebate. Since the “prebate” is paid in advance, Americans will have enough money to give to a cashier for the tax when they go shopping. The “prebate” would be received as a check in the mail, or deposited to a bank account, each month – similar to how Social Security payments are made, or how food stamps are distributed on debit cards.
It’s a frightening thought that every American would depend on the automatic gift of money each month from the government.
It is surprising to me that Neal Boortz, who calls himself a “libertarian,” would promote this idea. Recall that Libertarians are opposed to taxes, and they oppose the idea that people should become dependent on the government. But, clearly, after such a system of “prebate” payments was created, the main issue among voters would be how much political candidates would promise to increase the monthly payments when running for office. If any politician suggested cutting the payments, it would be like getting caught on Twitter with lewd photos. Nobody today proposes cutting Social Security benefits, not even Ron Paul or Gary Johnson.
Sound Familiar?
George McGovern’s “Demogrant” Proposal in 1972
The idea of a “prebate” for the FairTax is very similar to
an idea that presidential candidate George McGovern proposed in 1972. He suggested that every American should be given a $1,000 tax credit, which would be refunded to poor people. This idea was widely criticized, not least by Sen. Hubert Humphrey who used it against him in the California primary election. Even liberals in the Democratic Party thought it was too “left wing” for prime time.
The Earned Income Tax credit was then enacted in 1975, and it has increased continually with each new tax law. The Republican administration joined with the Democratic Congress to enact a variation of the McGovern idea, because “fairness” in the tax system is always a political football. “Fairness” is commonly defined as taxing someone else who is not “paying a fair share,” and getting a tax cut for yourself and your friends. The McGovern idea of giving tax credits is at the center of the FairTax idea of a “prebate.” The tax is not “fair” if it is really a flat tax, as most people think about these things.
But the really important question we need to ask is about taxes in general. Is it “fair” to take money from some people, who earn it or receive it by trading with others voluntarily for a profit, and give it to others?
The question is never asked.
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The “prebate” is the FairTax equivalent of the personal exemption, standard deduction and earned income allowance, but it differs in one important way. The “prebate” (which by the way does not come from the IRS – it no longer exists with the FairTax – but from the Social Security Administration) is not a forced savings plan. The “prebate” does not create the illusion of hiitting the lotttery because everybody gets it, based on family size.
The only group that misses out is undocumented aliens, who in a cash economy, go from being tax-preferenced to being tax-disadvantaged.
~Jim
Facts about the Fair Tax…
1) The Fair Tax will be collected at point of sale to the end consumer — goods and services purchased for personal use.
2) The prebate allows you to purchase goods and services with out the government tracking your every move. The prebate is optional. If you object to it simply do not take it.
3) The Fair Tax is progressive but the real beauty of the Fair Tax is you will control how much you pay in taxes. If you live a simple life you will probably pay little tax under the Fair Tax — but if you buy a big new Yaht you will pay a lot in taxes. The rich simply spend more so they pay more in taxes.
Study the plan and learn more about it. Once you understand it, you will demand it!
The FairTax is no more socialist that the idea of getting your money back when you send too much to the IRS!! In fact, the prebate is exactly that; Money that that was collected by the government that “shouldn’t” have been. The FairTax simply says that the government is not entitled to ANY taxes until you have taken care of your basic necessities and that of your family. So, rich or poor, no one is “taxed” on the purchases they make until they have spent equal to the poverty level.
Instead of a system that gives credits here, exemptions there, and is constantly being manipulated by one group or the other, the FairTax uses a simple refund system that requires essentially no record keeping, filing, or reporting. If you are legal, just let them know who you are and where to deposit your money. After all, you spent it, and you deserve it back!!
Rather than accepting false-front arguments against the FairTax, folks should learn a little more about it. How it helps the poor, stimulates the economy, creates jobs, reduces corruption, and saves almost a trillion dollars a year that is now spent in complying with our arcane income tax system, or lost due to the underground economy or through deliberate tax avoidance.
The FairTax: Once you understand it, you’ll demand it.
There are so many misstatements in this article, I hardly know where to begin.
First of all, AFFT/fairtax.org is NOT based in Georgia, but rather in Houston.
Secondly, even though everyone would pay the same rate at the checkout counter, the FairTax IS progressive – as opposed to regressive as the author implies. That is because the rebate is fixed according to family size and those spending more on consumption would pay not only more in taxes in absolute terms, but also a higher effective rate. However, no one would pay a higher effective rate than 23%.
Third, his objection to not taxing savings is badly misplaced. One of a number of economic adverse trends that economists are almost universally concerned about in the US is our low savings rate. It is too low to sustain a vibrant and healthy economy over the long haul. This is exacerbated by our enormous federal budget and trade deficits and these factors make us heavily dependent on foreign sources of capital. This is just one of a number of unsustainable economic trends that the current system either causes directly, or is a major contributing factor to.
The bigger question to me is what is the author’s solution to our horribly dysfunctional tax system? For example, we have one of, if not THE worst tax systems on the planet from a standpoint of global competitiveness. At a time when globalization is sweeping over the planet, and when the level of global competition is increasing rapidly, we cannot afford this any longer. Millions of jobs are being killed by a horribly antiquated and inefficient system. Our compliance costs are astronomical and rising each and every year.
As Teddy Roosevelt said, critics don’t contribute much to our society; it is those who actually go into the arena and match their ideas against others who deserve our respect.
I’m not sure how you can see the prebate as a gift. It un-taxes people up to the poverty level so they are getting their own money back they ‘have’ to spend to live at the poverty level. Saying its an ‘automatic gift’ is like saying your tax ‘return’ is also a gift.
In addition to this if you include the prebate (which amount is based on the family size) then the overall tax rate will be much lower for those with the least amount of money to spend.
In fact using the 2011 poverty guidelines the only people paying the full FairTax percentage (23%) would be those spending over $1 million a year while the average middle class family will be paying about 11%.
Those below or at the poverty level will either pay 0% of due to the prebate see an increase in their standard of living.
Sure we’d all love no taxes, but how do people plan to get there?
The federal government while overbearing and expensive needs revenue in which to operate. The FairTax is the only tax bill that will be revenue neutral while taking no taxes from your income.
Social security and medicare are fully funded from a more stable revenue source and we the people control how much and when we pay taxes.
Do your own research and you’ll see while not perfect, it is the best alternative to what we have now.
I love those critics that are quick to criticize HR-25, but fail to offer any tax reform solution of their own, not even a congressional bill. Perhaps they know that what ever they offer will be measured against the huge amount of research that went into the FairTax bill.
All of the “Flat Tax” bills that I am aware of, like HR-1040, collect this tax on Income. All Flat Tax bills should be named Flat Income Tax bills to make it clear just where the taxes are to be collected, unless they plan to collect it on major highway toll booths.
The Libertarian part of me wishes we could do this without a Prebate, whose formal name in the bill is Family Consumption Allowance. Maybe someday we can arrive at a time when a Prebate is not needed, but this bill is already a Mt. Everest to climb; without the Prebate it would become the next solar system.
“There is a principle which is a bar against all information, which is proof against all arguments and which cannot fail to keep a man in everlasting ignorance – that principle is contempt prior to investigation”….Herbert Spencer
The FairTax is not perfect; there is no perfect tax plan. It IS by far the best true tax reform proposal on the table, and the only one backed by extensive economic research.
Joe said: “Everybody hates the IRS during tax season, except for the 85 percent of Americans who get a refund.” Anyone receiving a a IRS refund of their own money, held by the IRS for a year without interest, is not too smart to begin with.
Joe said: “However, what many do not realize is that the payroll withholding tables published by the IRS for employers are actually tilted to give workers a refund.” That’s not a favor to the tax payer! It allows the IRS to use these dollars without having to pay interest. It also assures a lower amount of collection costs.
Joe said: “The families would be paying the national sales tax every day, at the grocery store and the gas station, so it would be hard for them to wait until next year to get a rebate.”
Joe said:
Joe said: “If enacted, the FairTax would require every American to be registered with the IRS and keep a current address and bank account information on file with the government to receive regular tax “prebates.” How else would you do the prebate transfer? Aside from knowing where to to send the prebate check (electronically) the IRS already has all of the bank account information they need about each one of us. Duhhh…
Joe said: “A value-added tax is a sales tax that does not exempt intermediate products, but allows a rebate on subsequent sales for producers, so the tax is not compounded over many stages of production.” The worst and most hideous of all taxes – a politicians dream. And the compliance costs are huge. The whole idea of tax reform is to get rid of the costly complexity. This is not a sales tax akin to the FairTax. The FairTax is inclusive as is the current tax system, and is collected at one point – the point of the sale at the cash register. Hidden taxes are gone, the taxes you see on the sales receipt are the only taxes.
Joe said: “The FairTax is supposed to be a tax only on final sales, although it is sometimes not clear when a sale is “final” and not part of a continuing series of production steps.” The legislation HR-25/S.13 covers all instances of when and where the tax is applied. And please don’t confuse the FairTax with the flat income tax.
Joe said: “The families would be paying the national sales tax every day, at the grocery store and the gas station, so it would be hard for them to wait until next year to get a rebate.” So what is it? The prebate is paid monthly or yearly? The answer is at the beginning of each month.
Joe said: “It’s a frightening thought that every American would depend on the automatic gift of money each month from the government.” What is frightening is your thinking. The prebate makes the FairTax perfectly progressive i.e. the poor are compensated for the FairTax up to the poverty level – THEY NO LONGER PAY ANY PAY ROLL OR INCOME TAXES AND ARE TAX FREE UP TO THE POVERTY LEVEL! The ‘rich’ are ‘punished’ over and above the poor every time they purchase anything over and above the poverty level thus satisfying the envious.
Here are some facts about the IRS tax code that should frighten you:
· The current estimated cost of IRS compliance is a conservative $300 billion annually
· The current annual ‘tax gap’ ranges from $350 billion annually to about $650 billion annually i.e. taxes owed the IRS but not paid. This amounts to 15% annually. And who pays this? ‘We the people… that’s who.
· The cost of the IRS bureaucracy is about $13 billion annually not counting the costs of litigation/incarcerations
· The cost to businesses to optimize their tax burden is estimated at $125 billion
These costs represent a nearly $1 trillion annual drag on our economy. ‘We the people…’ pay these costs for the privilege of allowing the IRS (government) to intrude into our lives and personal financial affairs.
Now here is the kicker: There is an estimated $13 trillion in U.S. dollars and assets now offshore for the purpose of avoiding IRS scrutiny. Among other economists, Alan Greenspan has stated that if a national consumption tax were in place that these dollars and assets would be repatriated “within months”.
Seeing as Washington has put us on the brink of bankruptcy, do you think we could use these assets about now?
Yours represents the most painfully stupid, and ill informed I have seen so far.
Joe Horenkamp
Novi, MI
The Fair Tax is by far the best solution to the economic mess this country is in right now. We will no longer have to file income tax with the IRS because they will not exist any more. Registering to receive the prebate is voluntary. We the people will pay taxes when we choose to purchase a service or new goods. Fair Tax is paid at the retail level. Business to business, no taxes. Corporations pay no tax or capitol gains. No federal witholding of fica or income tax. The author of the article I am sorry to say did not do their homework on the Fair Tax. Please check it out before you jump to unfounded conclusions! http://www.fairtax.org
The Prebate is one of the best features of the Fair tax. It gives every American family the current poverty level deduction, and evens the playing field for paying at the cash register.
Critics will argue that these monies will be expensive, and no doubt, $500,000,000 is no chump change. However, compared to the over $900B that is currently given out for deductions – the USA just saved $400B.
The Fair Tax also closes the tax gap of 20-30% unpaid taxes, while reducing the number of taxpayers from 80 million to 54. Two of the world’s largest economies run on this principal: #7 the State of Texas, #15 – the State of Florida. The Fair Tax – is really FAIR!
Here are the questions you will never ask (yourself):
Is progressive taxation baked into the American psyche?
Is it possible to pass a non progressive tax plan in American politics?
Is the fair tax a more honest way of picking winners than the current 80,000 page tax code that Charlie Rangel uses to decide which winners and losers get deductions?
Does the Fair tax make the tax code simple, transparent and understandable?
Would it be easier to move away from progressive taxation if there were just 2 levers (the tax rate and the prebate) as opposed to the rube goldberg machine of redistribution we currently have?
Mr. Cobb,
I wish to correct a couple of your statements as they do not tell an accurate picture. But in doing this I first want to point out a basic comparison between our income tax system and a national consumption tax, to wit, “The FairTax” as alternate methods of tax collection.
It is a given that in spite of EITC and Child Tax Credits, the income tax punishes the lower income earners the most.
It is a burden on business since no operating decisions can be made without concern for potential tax liabilities. That is no way to operate a business in a free enterprize economy. This alone stifles economic growth which affects all woking people, American or not, in this country.
The IRS annually reports a “Tax Gap” of more than $350B due to those who don’t file or under claim income. That gap is filled by the rest of the honest tax paying public.
Our representatives are hammered by tax lobbyists for loop holes that favor some one or some industry and which increases the tax burden on us, the tax paying public.
Compliance with the income tax system is literally impossible and costs an estimated $431B.
Contrasting these few gems of the income tax, the FairTax is very simple to comply with since only businesses that sell to the end consumer are required to collect and remit the tax. This one element alone is a giant leap in collection efficiency and reportedly will save close to 95% of the compliance costs we bare today.
The FairTax removes the most regressive tax on lower income earners, the Payroll (FICA & Medicare) providing an immediate minimum increase in take home dollars of 8.28%.
In eliminating the loopholes hosted by the income tax, the tax lobbyists are neutralized. I am not implying eliminated but there is no initial ‘slippery slope’ for them to take advantage of.
Per the IRS, only 1/3rd of the tax payers with qualified tax deductions even file for them. It is too complex and most don’t keep the necessary records, receipts, etc to file the long form 1040. And all who do file long or short forms for any refund end up paying someone else to do the return. The FairTax ends the practice of anyone, repeat, “anyone” from filing a federal income tax return and the expense from compliance.
That said, let me correct your mis-statements.
The comment that FairTax.org and Boortz reflects an immeasurable amount if ignorance on your part or blatant disingenuiness . FairTax is NOT from or based in Georgia. It is in Houston, TX and always has been. Now that your credibility is somewhat tarnished let’s go on to other mis-statements from your post.
The FairTax does NOT REQUIRE every American to register with the IRS. It only requires residents of this country who want to have the benefit of the prebate to register with the Social Security Administration providing proof of legitimate residency and social security accounts. You’ve already forgotten the IRS is abolished by the FairTax. Folks in this country that do not meet the requirements do not get the prebate, officially known as the Family Consumption Allowance.
By the way Mr. Cobb. I am curious why you do not consider the filing of our income tax forms other than not only registering with the IRS, giving them our bank accounts as well as much more personal information a negative act required by the income tax. As a Libertarian I would think you, like Ron Paul would be acceptive to the FairTax as getting closer to your desires than any other tax plan being offered.
The FairTax on ‘final sales’ is further defined by stating, there is no tax on business to business transactions and the tax is imposed on the sale of new goods and services to the retail consumer. Also that the FairTax is only applied to new goods that have not been taxed previously. This circumvents someone from buying a sample, using awhile and selling it to a final consumer without tax. It is taxed at fair market value on that sale.
This statement “The problem with a flat tax, in today’s political society, is that most people believe “the rich” should pay more and “the poor” should get tax credits and exemptions, particularly if they have children.” is simply one of playing class warfare and not deserving of comment. However it is understood by most that people with more disposable income consume more therefore even under a flat tax pay more in taxes.
A retail sales tax doesn’t tax savings? Are you really a Libertarian? And an economist? Last I knew money in savings is used by banks to lend for mortgages, business expansion, vehicle purchases. When more money is available for lending doesn’t interest rates usually get lower making it easier for people to afford the loans?
Touching again on the prebate, it is not, as you state, given to every American family. It is available only to individuals or families that qualify as I defined above. They don’t need to be American. Just here legally.
Maybe you would offer to describe why waiting for the prebate would be so frightening, more so than waiting for their EITC or Child Credit or income tax refund or Social Security check. Do I detect a double standard here Mr. Cobb? You seem conflicted in how you use your arguments.
I agree with your thought that candidates might campaign on increasing the prebate however the legislation is clear on how the prebate is determined and a few errant politicians won’t get to make that change so easily. Furthermore, what is the difference in today’s candidates that you find more favorable?
And I think we agree that when it comes to fairness, it is not fair to take money from some people to give to others. We as a nation can look ourselves in the mirror to find the blame for this. We did not perform our civic duties to participate in government. Oh yes, we voted and did so with much ignorance about the candidates.
Again on the fairness issue. when compared to the income tax or a VAT I think any person with honest objectivity would agree the FairTax is fair in how it is administered and in avoiding favors on what and who is taxed or not taxed. We certainly cannot say that about the income tax.
Larry Walters, Longwood, FL
Mr Cobb:
I will not respond to most of the half-baked conclusions you have posted as they have been throughly rebutted by others. The one issue not addressed that needs further comment is your statement; “The families would be paying the national sales tax every day, at the grocery store and the gas station”.
Who do you think is paying the corporte taxes on all the goods and services we now purchase under the present income tax system? It sure is not the corportion. They only collect the taxes and pass them along to the consumer in the price we pay. Which on average is around 22 percent of that price so “The families would be paying the national sales tax every day, at the grocery store and the gas station”.
Don’t expect retail prices to fall by the exact amount of the imbedded tax but there should be some adjustment after the FairTax is in place.
I recomend that you read all of the information availaqble on the FairTax and if you are unable to understand the value such a law would bring to the country mabe a course in reading comperhension might help.
Bill Harrington
Collinsville, Oklahoma
I like to think we live in a civilized nation. As such, it’s civilized to allow a bread winner to support his family to the poverty level cost of living before we charge him to pay for the military. This is occomplished by the prebate.
What’s more, with the prebate, illegals are disadvantaged and will have less incentive to enter the US.
The Fair Tax is certainly more fair today than the Income Tax. However, the biggest problem with the FairTax is not all the minutia of the plan, it is the entire premise that we have to maintain a “Revenue Neutral” amount of money paid to a central bureaucratic organization in order to supply funding to the government. If any of you would simply do some research and look it up, there are a number of facts that cannot be dismissed about the history of taxes and what is really fair and constitutional:
1. Prior to 1913 there was no Income Tax and the Federal Government raised taxes by fees and excises or other means–an indirect means of taxation! The size of our Federal Government was also smaller and less intrusive. Article 1, section 2, clause 3 of the Constitution requires that all direct taxes be apportioned amoung the states based on population. The 1895 Pollack case stated that taxing of Income and Personal Property were direct taxes. It took 3 primary events from Congress to legalize a direct tax on people’s property: One, the enactment of the 16th Amendment, Two, the creation of the Federal Reserve and Three the creation of the Income Tax. There were also a few lesser events from Congress and loads of propaganda over several generations that gave rise to such things as acceptance of government to treat wages as income and the rise of the wellfare state through social security and other programs.
2. The Federal Reserve system is a private organization that is masquerading as a central bank, and from its inception has formed a partnership with government to form a cartel with the sole purpose of draining the country of its wealth. Government gets a major kickback in the form of a Federal Reserve check book–a credit card with near unlimited funding and in return they provide protection for the racket. People believe that our tax dollars go to fund government operations, but there are many who believe (and are well sourced) that show every tax dollar goes instead to this banking cartel. The US treasury instead functions as a collection and money printing agency, not an accounting office. Just look at the back of every US check, which has a Federal Reserve Board certified security statement on it. If this is true, then there is some deception about where our tax money goes and what is its function–again, the idea here is that our tax money goes to pay for government expenses. The Federal Reserve system is the only organization in America that collects well over a trillion dollars each and every year tax free, and it is the banking families of the cartel that get all the money! Who owns the FED? The Rothschilds of London and Berlin; Lazard Brothers of Paris; Israel Moses Seif of Italy; Kuhn, Loeb and Warburg of Germany; and the Lehman Brothers, Goldman, Sachs and the Rockefeller families of New York. This is all well documented. So, think of it this way…for 90 years after 1776 our American government with gold backed currency had the largest most advanced expansion of any nation on earth, and some would say the history of mankind, which all was hijacked by a group of central bankers that didn’t like the idea of having an open free market system, undominated by a central controlling authority! The book explaining much of this is “The Creature from Jeckyll Island,” by Griffin.
3. The Income tax is a fraud. This is well documented, and shown in detail by such books as Irwin Schiffs book the Federal Mafia, amoung others. The income tax is also one of the 10 planks of communism, designed to rob a nation of its wealth. It is also the largest fronts for wealth distribution, which is another communist idea. If you tie this into the Social Security Administration, which perpetuates the Ponzi scheme of Social Security, and the idea that this is a retirement fund (on paper), not just an insurance scheme, a pandora box of illegalities and false promises is opened up. Like any Ponzi scheme, it works for the first few generations of it, but it eventually can’t pay itself and someone down at the bottom of the pyramid won’t get paid, while the maker of the system at the top gets all the benefits! As Irwin Schiffs book shows, the Income tax is actually written in legalize to be legal! However, it is not enforced the same way it is written, and most IRS agents cannot understand its 70,000 plus pages of complexity to begin to give it credibility. If it were enforced the way it was written, not one citizen of the US would be paying a dime in taxes, all Federal employees would be paying the graduated rates and illegal aliens would pay 35% plus. One of the main problems with the Income tax is that there has been 50 plus years of purposeful deception on the basic definitions of legal jargon and the idea that wages are the same as income and also that it is our good contribution as citizens to pay the income tax, so our benevolent government can provide all the wonderful services it has to offer! There are legal cases that specially exempted wages from the category of income, considering that wages are a trade off between the business and their workers. There are also supreme court cases that have defined income as “Corporate profit,” which would have nothing to do with an average person’s wages. Bottom line, at the very least there is huge confusion on Income taxes, but more likely there is a purposeful conspiracy to extract the maximum amount of wealth from our nation through the use of taxes and enforcement bullies. Just consider the fact that when you file a return, you are not disclosing your income tax paid–they already have that information, which your employer sent to them, but you are signing a document “under penalty of perjury” that you owed the amount sent! This is how they would try you in one of their Kangaroo courts–not on the basis of merit that you actually owed anything, but on the fact that you gave your consent through your employer to pay it, and signed a form verifying that you owe it!
So what does this have to do with Fair Tax? Just consider the basic fact that when you only get rid of the Income Tax and IRS itself, it doesn’t challenge the other 2 areas that work together to perpetuate the fraud. It says nothing to counter the merits of the 16th Amendment or Laws by Congress to authorize illegal taxation, nor does it deal with the cartel behind it all. Simply substituting one tax for another, without dealing with the root of the problem, only maintains status quo! Putting lipstick on a pig doesn’t change anything about the pig! If we want to truely be free of unfair Taxation in America, we need to Abolish the Federal Reserve System, arrest all the members of the cartel and confiscate their wealth to reform a gold backed currency like we had prior to 1913. A new currency as such would free us from not only unfair taxation, but the most unfair type of taxation the Fed has at its disposal–interest rate manipulation! Sound money also will help stablize the market. The long term permanent solution to the Income tax problem is to abolish the entire system and replace it with “NOTHING”!
Quote:
If enacted, the FairTax would require every American to be registered with the IRS and keep a current address and bank account information on file with the government to receive regular tax “prebates.”
Wrong, under the Fairtax bill, the IRS is eliminated. Every American is already registered with the Federal Government via the Socail Security System.
Quote:
The FairTax is a national retail sales tax. And a national retail sales tax is a flat tax.
Wrong, a flat tax is a tax imposed on income. The Fairtax is imposed on spending, so the rich who spend the most would pay the most tax.
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The FairTax is supposed to be a tax only on final sales, although it is sometimes not clear when a sale is “final” and not part of a continuing series of production steps.
Wrong, The Fairtax is imposed at the cash register, how much more final is that? 45 states feel it is a great way to collect taxes.
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So if you believe a family’s “income” is the proper way to think about tax rates, a sales tax is “regressive.”
Wrong, a sales tax is “progressive”, the more a rich person spends, the more he pays in taxes.
What you fail to address in your rant is that millions of illegals in this country don’t pay taxes and expect to receive government funded services. The Fairtax insures everyone pays their fair share. It also acts as a disincentive to illegals as they would not receive the “Prebate”. The tax base in the U.S. would be expanded hugely. Tax cheats, under the table workers, and the huge underground economy, even tourists would become unwilling taxpayers.
About your really important question: “But the really important question we need to ask is about taxes in general. Is it “fair” to take money from some people, who earn it or receive it by trading with others voluntarily for a profit, and give it to others?”
The FairTax answer to that question is that the FairTax strategy separates the taxation issue into its components: how much revenue is required, how to spend the revenue, and how to collect the tax. FairTax deals only with the last. I too have strong opinions about the other issues. BUT discarding the other components makes the FT much easier to pass. AND the other components, which are as important as you suggest, are left for other initiatives. The FT is designed to be palatable to most people so that we can get it passed!
FT does choose the progressive scheme which is re-distributive. I don’t like that either, but here is what you do. Get yourself elected. Get the FT passed. Afterwards, lead the charge to eliminate the pre-bate. I’ll support you on that.
The design of the FT is pragmatic, not ideological. Even though I am not pleased with all of the choices that it makes, it is such a quantum leap toward freedom from what we have that I support it wholeheartedly.
I work FT booths at events regularly. Democrat conventions are my favorite because most of the attendees have never heard of the FT, and mostly they LOVE the idea when they hear it. FT has a fair shot at bi-partisan support. It can happen.
FT is a slam-dunk for most libertarians. You should reconsider.
Tim
I would like to address one of your statements that does not appear to have been addressed: your statement that “the main issue among voters would be how much political candidates would promise to increase the monthly payments when running for office.”
The prebate, as written, is equal to all, based on family size and tied to the poverty level. Even if a politician promised to increase the prebate amount, #1, all will receive it, so you’re not going to be able to show favoritism to one group over another, and #2, an increase in the prebate would have to equal an increase in the tax rate, or the government will be taking in less money. Any opponent to said politician would pounce on that issue and make this a non-starter as soon as anyone ignorant enough to suggest it uttered the words.
This brings us to the second part of that same statement: “If any politician suggested cutting the payments, it would be like getting caught on Twitter with lewd photos.” You’re implying that we would never get rid of the prebate, since no one would be able to campaign on cutting funds to the masses. That’s a false premise. You can cut the prebate amount in the most favorable manner that ALL citizens would rejoice over: cut the tax rate. That’s right, with the prebate based on the Federal taxes paid up to the poverty level, when you decrease the tax rate, you decrease the amount of prepate needed to offset that tax.
It is this way that we eventually get to the true Libertarian’s goal of zero taxation on the citizenry. Americans will see their taxes on every receipt of everything they purchase that qualifies. Eventually they will want to look for ways for government to reduce spending so that their tax burden can be lessened. Under our current system, there are so many hidden taxes in everything we buy (businesses don’t pay taxes, the citizenry does in the way of lower wages, fewer benefits, or higher prices) that the government can increase the tax burden on the citizenry without them even knowing it. “Tax the rich”, “obscene oil profits”, “eliminate tax breaks on big corporations”, all of these result in higher taxes on the lowest income earners and they don’t even see it coming. With the Fair Tax, we are all in the same boat, we are all paying taxes, and it will all be in our best interest to reduce government spending to put more money in our pockets.
I appreciate the author’s skepticism, but I agree with others’ statements that either he has not done his due-diligence on the issue, or he is being deceptive with the facts. I doubt there are very few citizens who prefer to be taxed. Our government was able to run for nearly over 100+ years without directly taxing the citizens, and we can certainly do it again. It’s just going to take discipline, sacrifice, and fidelity to the Constitution to get there. The Fair Tax is a great start to get us to that goal. We ALL must have skin in the game if we’re going to get there.
In addition to all the wonderful answers above I would like to add that because the Fairtax is paid at the point of sale it will be seen several times a day by the people who are paying it: instead of being hidden in the cost of goods and services or in payroll deductions. The honest visibility of the cost of our government would cause people who presently have no idea what it costs, to reconsider how much government they need and want to pay for. Over time this simple knowledge will save our country.
Sincerely, Dan
The current U.S. Income Tax Code has been falling apart for years!
Those who can afford armies of tax attorneys and CPA’s to navigate around this tax code and lobby the government for tax breaks are the ones who don’t pay income taxes.
And those of us who can’t afford to lobby or pay for all the legal help necessary end up losing and paying.
The Income Tax code is almost 75,000 pages long and that does not even include all the thousands and thousands and thousands and thousands of pages of tax publications, instruction booklets, revenue rulings and tax court cases.
The only solution is getting rid of the current Income Tax system as it has proven to not work. The problems it has are inherent within the mind numbing code itself. Just pick it up and read it. It is obvious that it cannot be fixed by adding more and more regulations to fix the earlier regulations. The basic model just does not work. .
There are currently about 26 countries in the world who do not have an Income Tax code like the United States (no country in its right mind would set up such a system). And all these countries are doing much better economically that we are.
So the solution lies in the abolishment of the current Income Tax code.
A system that makes it illegal to not do bookkeeping the way the government says, has billions of dollars in compliance costs and is constantly being added to with new regulations every single month is not a system that can sustain itself and will eventually collapse.
Here’s a thought about the difference between the current tax code and the FairTax that the other comments previously posted have not covered. It’s more of an abstract issue of human rights.
If I was able to legally impose a lien upon everything you will ever create, build, produce or earn and have the right to claim whatever portion I chose as mine, how would you define our relationship? If I have the legal right to take from you whatever part of your present and future productivity, how would you define that relationship?
If your only recourse was to bare your sole, telling them your earnings, telling them if you own or rent, telling them how many dependents you have, telling them who you owe and what payments you have, what charities you give to, telling some faceless bureaucrat every part of your personal being… to prove that you need to keep a larger part of what they took from you, how else would you define our relationship?
Here’s a clue: 150 years ago, our relationship would have been referred to as that of a Master and Slave, with the slave begging the master to let him keep just a little bit more so as to benefit his family while living at the whim of the master on his plantation.
Our current tax system similarly gives government a blanket lien over everything you earn, produce or create. It gives government the arbitrary right to determine how much of what you earn and in the words of Ambassador Alan Keyes, “if the government has the right to take a penny of your earnings, it has the right to confiscate it all. And that makes you nothing more than a slave”.
With an income tax, your money is SEIZED.
But with the FairTax, your money is PAID.
The difference is called CHOICE.
With the FairTax, YOU choose, when, where and how much tax you decide to pay whenever you make that choice to purchase a taxable product or service. And Walmart, Target, the Ford dealer and the plumber never asks you how much you make, how many kids you have or what charities you choose to support.
With the FairTax, your privacy is yours again.
The FairTax would turn our nation into the world’s tax haven, allowing American goods to cost less and be far more attractive to foreign consumers since the tax component would be gone and the FairTax would not apply to exported items. This competitive edge would attract billions in foreign investment capital and would reverse the flight of American jobs going overseas. As the cost of home ownership would be reduced, our depressed housing industry could get back on its feet, putting our construction industry back in business. The same can be said for our auto and other manufacturing enterprises that would export untaxed products overseas.
The FairTax is fair because if Bill Gates, Warren Buffet, Oprah Winfrey, you, or me buy that bottle of Pepsi and a Big Mac, we will all pay the same amount of tax. No longer would someone in Washington need to know your personal business, your earnings, your marital status, whether you own or rent, or what you invest in or what you buy. Your privacy is yours again. No longer does a mortgage payment get preferential treatment over a rent payment. No longer is hard work and achievement punished as income increases. No longer would risk-taking and investment capital be penalized while failure is rewarded. Everyone pays the same sales tax and everyone gets the same prebate, yet Joe Cobb says “The FairTax, A Socialist Idea”
Bottom line: the FairTax is fair because it takes the politics out of revenue generation. With the FairTax, Washington would no longer be able to use the tax code to reward their cronies and punish their enemies. The FairTax gives people the freedom to choose when and how much they want to pay for the government they desire. And that’s what really scares the people inside the Beltway.
Support the Candidates that Support the FairTax!