Framing the Dialogue

A Fair Tax

“Government does not tax to get the money it needs; government always finds a need for the money it gets.”

                                                                       Ronald Reagan

Happy “Tax Day” which actually refers to the day our income tax returns are due to be postmarked to the IRS.  There is actually a “Tax Freedom Day” as estimated by The Tax Foundation.  This is the day through which all of your earnings are taken by government (if they took it all first).  The 2009 Tax Freedom day was actually two days ago (April 13) which is the earliest it has been in some time.  After April 13, you theoretically work for yourself.

“Are you entitled to the fruits of your labor or does government have some presumptive right to spend and spend and spend?”

                                                                       Ronald Reagan

President Obama has made several announcements and appointments recently related to personal income tax issues.  He has tapped Paul Volcker to help develop economic policy (including changes to the tax laws) and again today called for simplification of the tax code.  Hold on to your socks, but I agree with him.  I suspect our roads will drastically veer away from each other after that point.

“Have we the courage and the will to face up to the immorality and discrimination of the progressive tax, and demand a return to traditional proportionate taxation? … Today in our country the tax collector’s share is 37 cents of every dollar earned. Freedom has never been so fragile, so close to slipping from our grasp.”

                                                                      Ronald Reagan

The proposal for true tax reform is the Fair Tax.  I reviewed Fair Tax: The Truth a week ago and promised to go into a little more detail.  I cannot do justice to the work of the authors of the book and the legislation that was written, but will try to provide some of the points that will peak your interest in the subject and convince you to delve further.

The Fair Tax is perceived by many as some as a “pie in the sky” plan that cannot be implemented, but it may surprise you to know that many former soviet block countries are implementing flat or fair tax plans.  Ireland has instituted a flat tax.  The progressive tax system (the more you make the higher tax rate that you pay) was made popular by none other than Karl Marx. 

I used to confuse the Flat and Fair tax, but have come to appreciate the difference.  The Flat tax is an income tax that has a flat rate for all taxpayers.  Our current tax system started as a Flat tax.  It was presented, at that time, as a tax on the rich.  Does this sound familiar?  Over the years, many constituencies were given their pieces of the pie to mollify us and keep us in line. 

I have often listened to “others” decry my tax deductions (i.e. home mortgage interest deduction) while I complained about your deductions.  This is the drug that politicians get us with.  They give us a little and maintain their power.  Do you know how many pages the tax code has swelled to?

I am no longer in favor of the Flat Tax.  I am a Fair Tax supporter.  The Fair Tax is a consumptive tax.  It would be implemented in the form of a national sales tax.  That scared me until I read the proposal.  The Fair Tax plan is to replace the current corporate and income tax system with a sales tax.  The sales tax rate would most likely be a whopping 22%!  That sounds excessive right? 

It may surprise you that Harvard University conducted of study of our current tax code and found that the embedded taxes that we pay average…22%.  The dirty little secret is that you are already paying these taxes, but they are hidden.  When government raises the taxes on a company, those tax increases will make their way to the cost of what they produce and you buy.  You are already paying these taxes.  Do not let Fair Tax deniers scare you with this number.

The authors of the Fair Tax are very up front about the rate.  The Fair Tax is not a tax reduction effort or government spending reduction plan.  Those are subjects not covered at this time.

“When the people find that they can vote themselves money, that will herald the end of the Republic.”

                                                                                Benjamin Franklin

Another thing that we often hear about is how we do not collect money from illegal enterprises.  There are often calls for legalizing marijuana, or prostitution, or gambling, or even illegal aliens so we can tax them.  I would like to take their money, as I do not participate in any of those activities, but I am not interested in legalizing them.  The Fair Tax will tax them when they spend their ill-gotten gains on stuff.

“It taxes wealth instead of wages.  In case you have missed it, the very wealthy in our country don’t earn wages.  Result: they don’t pay payroll taxes.  These people spend a lot of money on attorneys and accountants to structure their financial situation in such a way that they can live off their capital gains and dividends – which are taxed at 15%.”

                                                                                   Fair Tax: The Truth

It would seem that a Fair Tax might unduly harm lower income folks.  That sounds oxymoronic, but the authors have this covered.  The government would calculate the cost of purchasing basic items and each taxpayer would receive a “prebate” to cover the sales tax on those necessities.  If you want to spend your money on other non-necessary items, you pay the tax.  Buy a yacht…pay the tax.  You should know that, as proposed, the sales tax would only apply to the purchase of “new” items.  If you can live with buying a used car for example, there would not be a sales tax.

“But how is this legal plunder to be identified? Quite simply.
See if the law takes from some persons what belongs to them,
and gives it to other persons to whom it does not belong.
See if the law benefits one citizen at the expense of another
by doing what the citizen himself cannot do without committing a crime.”

                                                                            Frederic Bastiat

  • Imagine a country where you received your whole paycheck. 
  • Imagine a country where you could decide, through your purchasing decisions, how much tax to pay.
  • Imagine a country where you could see what politicians are spending (some call this obscure concept transparency).
  • Imagine a country where manufacturing is not burdened by hidden taxes and have products more competitive in our global economy.
  • Imagine a country where career politicians have less power.
  • Imagine a country where everybody pays his or her fair share.

Imagine no more.  Do not call the Fair Tax pie-in-the-sky.  Read the book, know the criticisms, learn the responses, and spread the word.  It WILL be achieved with our persistence. 

“Every man is equally entitled to protection by law; but when the laws undertake to add… artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government.”

                                                                                 Andrew Jackson

Please visit the Fair Tax web site to learn more.  The site is full of information and includes many facts about the plan.  I know that you will be pleasantly surprised and how many people (including many elected officials) are on board with the Fair Tax.

2 CommentsLeave one

Leave a comment

Use basic HTML (<a href="">, <strong>, <blockquote>)