The 50 Reasons I Support the Fair Tax
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Americans for Fair Taxation is a 501c(4) non-profit, non-partisan organization, headquartered in Houston, Texas with an office in Washington, D.C. Since it was founded in 1995, Americans for Fair Taxation has grown to become the largest tax reform organization in the United States with over 400,000 supporters and members. Americans for Fair Taxation advocates the elimination of the current income tax code and proposes to replace it with the FairTax, a single-rate, federal consumption tax collected only once, at the final point of purchase for personal consumption.
The 50 Reasons I Support the Fair Tax
- FairTax and Individuals and Families
- It allows workers to keep 100% of their pay, with nothing withheld for the IRS or for Social Security and Medicare payments.
- It is revenue neutral with the present income and payroll tax system, funding the federal budget at current levels.
- It shifts the tax to consumption. Records show that consumption is more stable than income, therefore the tax revenue stream is likely to be a more stable and predictable amount.
- It is progressive, a “prebate” of the tax amount up to the poverty level is given to everyone. This means that those spending below the poverty level have a net gain because the “prebate” exceeds the amount paid in taxes. (Under the present system the working poor pay the 7.65 percent payroll tax even if they get a full refund of income tax withheld.)
- It doesn’t tax pre-owned items – clothes, cars, homes. Only new items are taxed when sold by a business to an individual.
- It is expected to remove an average of 22% of the cost of American made goods by removing the built-in payroll tax (the other 7.65% of earnings that employers pay), corporate income tax, and other business taxes that are now passed to consumers as an “embedded" tax of approximately 22% due to the cascading of income and payroll taxes paid by U.S. employers, at every step of production, to the U.S. Treasury. Competition will cause prices to fall by approximately that amount, on average.
- It allows families to save more for home ownership, education, and retirement. An average family making $50,000 will have $7,500 more spendable income.
- It removes the need for formal accounts of the 401(k), IRA, HSA, etc., varieties. Anyone, rich or poor, will be able to set up any kind of savings or investment account without regard to taxes or the government. No special knowledge of tax law is necessary.
- It makes educational tuition a tax-free expenditure of tax-free income.
- It eliminates the income tax and the IRS. Members of Congress and the public overwhelmingly agree that the current internal revenue code is cumbersome, intrusive, coercive, and inefficient.
- It eliminates 90% of the cost of compliance. American families and American businesses waste an estimated $250 – $600 billion per year (and countless hours of time) doing the paperwork necessary to comply with the current tax code. That is roughly $1,000 – $2,000 annually for every man, woman and child in the U.S. (Businesses typically pass their tax bills and compliance costs on to the consumer, i.e., individuals and families.)
- It’s simple, unambiguous, and certain, the opposite of the current tax code, 60,044 pages and counting.
- It assures that no American will find, at the end of the year, a need to get a loan to pay taxes as an alternative to penalties, interest, or cheating.
- The broader tax base comprises everyone spending money in the U.S., including the ten percent of our economy (an estimated $1 trillion) that today is underground or under the table. Under the FairTax, the illegal drug dealer will pay his tax just like the rest of us when he buys his sunglasses, BMW, and other items, as will those who work for cash and undocumented immigrants, all of whom receive government and societal benefits.
- It encourages work by letting workers keep 100% of their earnings and giving a rebate, in addition, making the notion that “the more you work, the more money you have”, a reality, unlike the current system where welfare is lost when you go to work, so the first dollars earned after taxes just offset what a welfare recipient is currently receiving in assistance, so working is perceived as disadvantageous.
- It allows more of the lower income families to become home owners by allowing a second job income above their current income (all tax free) to be applied to a mortgage. Money for down payments for homes is also saved totally tax free, causing it to accumulate faster.
- It has the result that all lending in America will be at the equivalent of today’s tax exempt interest rates, which are 25%-30% less than today’s taxable home mortgage interest rates. This will create a huge boom in housing purchases and allow existing homeowners to refinance and reduce their cost of homeownership substantially.
- It allows families to retain farms and businesses in the hands of those who built them through the elimination of the death tax.
- It allows families to give tax-free assistance to one another by eliminating the gift tax.
- It gives individuals (and businesses) the right to donate as much as they want to in a given year to charitable causes, without concern for exceeding an allowed limit on giving.
- It encourages individuals to self-insure, making the health system more direct-pay (no 3rd party pay), thus bringing costs down.
- It puts an end to the anxiety for honest taxpayers that begins soon after January 1 for most of use, culminating in wondering whether we’ve claimed everything we legally could and nothing we shouldn’t, all without raising questions at the IRS. It makes April 15 just another day. (Perhaps it will be a holiday after the FairTax is enacted!)
FairTax and Social Security and Medicare
- It eliminates the regressive payroll tax that hurts the poor. Currently, every one of us is taxed a minimum of 7.65% on our first-dollar of wages up to $90,000 (the cap for FICA, not Medicare), if we earn that much. It provides funding for Social Security and Medicare at a level equal to the current system.
- It provides that all 290 million Americans and 51 million visiting tourists fund Social Security and Medicare with their purchases. Today only 110 million workers fund these programs via deductions from their paychecks.
- It assures that the wealthiest Americans will be voluntarily helping to fund social security with every last dollar they spend above the poverty level. Today, earnings are subject to FICA taxes only up to $90,000. The wealthiest Americans therefore do not pay into the system above that amount. If their earnings are from investments, no earnings fund the Social Security system.
FairTax and the Economy
- It increases investment in business by eliminating the capital gains tax.
- It allows for better planning by businesses, because they no longer have to consider the tax implications of everything they do.
- It makes higher employment or better compensation possible in the small business sector, where today it costs approximately three dollars in compliance costs to pay one dollar in payroll and income taxes.
- It makes American products more competitive overseas by removing the embedded tax from them, thus lowering the prices of our exports, which compensates for low foreign wages.
- By making our exports more competitive overseas, it lowers our balance of trade deficit and increases employment at home.
- By removing the embedded tax from American products, it makes them more competitive with imports here, compensating for the low cost of imported products from which taxes have been removed before exportation to the U.S.
- It encourages investment in companies located in the U.S., thus providing a home for money already in the U.S. and attracting more. The U.S. will be the most attractive tax-free haven in the world for doing business.
- It encourages repatriation to the U.S. of money held by U.S. individuals and companies now in foreign countries, with no tax consequence. American companies will return from offshore and overseas.
- It results in a windfall profit, likely to be invested in job-creating businesses, for many of those holding taxable corporate high interest bonds at the time of passage of FairTax, since the bonds will not be taxed under the FairTax. (Currently, a higher interest rate is usually paid to entice investors to buy the corporate bonds rather than go with the lower interest, but tax free, municipal bonds.)
- It results in Federal Reserve rates being based on current consumption, which is rather stable, instead of future earnings, which are less predictable, resulting in surer inflation prevention.
- It reduces production costs for farmers and other subsidized businesses, leading to a reduction in subsidies, thus reducing the federal budget.
- It moves many individuals now providing tax advice (return preparation, advice, accounting, planning, and records maintenance) into an expansive economy where they will be producing goods and services. There they can add to the standard of living of all Americans and likely earn more than they do currently, instead of shuffling paper for the government (and not contributing anything economically to society).
FairTax and Churches and Non-profit Organizations
- All contributions to Churches and other non-profit organizations are made tax-free. These organizations no longer will bear the expense of filing tax returns with the IRS and paying their half of Social Security and Medicare payments for employees. In order to purchase goods and services tax free they will just have to apply to the state sales tax authority for a qualification certificate as a bona fide not-for-profit organization operated exclusively for religious, charitable, scientific or educational purposes.
- It restores to churches and non-profit organizations the 1st Amendment right to engage in free speech, without fear of losing their tax-free status.
FairTax and Rights and Freedoms
- It restores the 4th Amendment, protecting against unreasonable searches and seizures, from which the IRS presently is exempt.
- It restores the 5th Amendment, which guarantees the right to due process. Under current systems the IRS has their own courts with their own set of rules not included in the 5th Amendment.
- It restores individual privacy. You no longer have to report where you work, what you are earning, and what you are doing with it. (Employers will report your earnings to the Social Security Administration for determination of your social security benefits.)
- It relieves citizens of the risk of facing the shift in burden of proof that is so common with the current system, i.e., the taxpayer is guilty unless proven innocent, but even the IRS staff sometimes gives conflicting interpretations.
- It eliminates the need to have a "marriage" clarification declaring who you live with, as that no longer has any bearing at all on a state or federal sales tax.
- It eliminates the need for courts to decide which divorced parent gets to take the tax deduction for children.
FairTax and Government and Educational Entities
- Without FICA to pay, most states, counties, municipalities, and school districts will see a large increase in their available state budget revenues, additionally lowering the overall tax burden (State & Federal) for most Americans.
- It eliminates the administrative costs incurred by states in collection of state sales taxes because states will piggyback the state tax collection onto the national tax collection, for which they are compensated by the FairTax ¼% administrative cost give-back. (Retailers receive an equal amount for collecting the FairTax.)
FairTax and Politics
- It cleans up a major flaw in campaign financing, eliminating campaign donations for "tax favors".
- It eliminates wrangling in Congress over tax cuts, the tax code, and who is or is not paying a fair share of the tax bill, providing more time for debate on more productive issues.
FairTax and the Environment
- It’s good for the environment. Reportedly, the IRS sends out 8 billion pages of forms and instructions each year. Laid end to end, they would stretch 28 times around the earth. Nearly 300,000 trees are cut down yearly to produce the paper for all the IRS forms and instructions. Also, since it taxes only new items, it would encourage buying tax-free pre-owned cars, clothes, furniture, houses, etc. Reuse is good for the environment, too.
Kenneth J. Van Dellen (with help from friends) 1/22/05
(Family-friendly tax reform)