A Better Bailout: The FairTax
Politicians and bankers are telling us our economy is in a downturn but many refuse to believe it. They tell the American people that we need to sacrifice our tax dollars to bail out another persons or companies failure to make responsible fiscal decisions. We are told the American economy cannot rebound without intervention. Neo-conservatives like John McCain have abandoned the belief in free market principles and are now espousing socialist ideology to nationalize mortgages and company debt instead of traditional conservative ideology that espouses belief in laissez faire principles that allows for companies to succeed or fail without government intervention. Obama's socialist position are of no surprise.
The markets are in desperate need of capital yet both John McCain and Barack Obama have left the possibility or in some cases the guarantee to increase taxes. It does not matter if it is capital gains, income, payroll, or corporate. They all have the same net effect. Reduce the amount of money available for investment from Americans and businesses. These forms of taxation act as a hinderance to economic growth and in turn job creation. The question is how to increase capital into the market as savings rates by American society has turned into an average net negative, meaning Americans on average not have a negative amount of savings allowing for the accumulation of debt.
Instead of offering one of many temporary solutions the politicians should be discussing a complete change in the tax policy of the country. The current tax policy punishes hard work and high achievement by taxing higher income levels at higher rates. I have no problem with a progressive form of taxation but it should not be based on income level. The current tax policy stifles savings and investment by taxing capital gains from these investments (this is the major issue in the credit crisis). The capital gains tax needs to be abolished.
Next step, stop taxing corporations. I know this sounds crazy. If you examine the idea though it solves some major problems. Currently the corporate tax rate is at 35%. This is the second highest in the industrialized world. This is a negative impact on attracting corporations to relocate to the United States (i.e. the recent move of Haliburton to the UAE to escape high tax rates) as well as fostering economic growth. Reducing income levels through taxation limits the amount of reinvestment in development of operations within businesses and amongst businesses acting as an inhibitor to economic growth. Coincidentally the level of economic growth inhibition directly effects the ability of corporations to expand employment. Add on top of this the mandatory matching donation that is required for corporations to the bankrupt Social Security fund. This offers yet another reason to the slowing job creation rate in the United States and an impetus for corporations to export domestic jobs to China, India, and other international locations. Not to mention eliminating corporate tax rates will remove the 16-28% embedded tax rates on goods and services corporations pass along to consumers. You understood that correctly, corporations do not really pay the taxes; they merely pass them onto the consumer.
Finally we eliminate the payroll taxes (Social Security - I have touched on this a bit already, Medicare, Medicaid, etc). These taxes are highly regressive* in nature hurting low income earners the most.
So now where do we go? After all I have eliminated the income tax, capital gains tax, corporate taxes, and the highly regressive payroll taxes, not to mention other forms of taxation that you must account for to the IRS each year.
Simple, repeal the 16th Amendment, which the founding fathers would be highly critical of because it violates the 4th Amendment.
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.Then we pass the FairTax. The FairTax is a simple, transparent, and easy to understand revenue neutral national sales tax that eliminates the forms of taxation I mentioned. That means you get your full pay check each month, that is like a 25-33% raise on average.
Did you know that the income tax was declared unconstitutional in 1894? We can thank Republicans for the passage of the 16th Amendment making an income tax constitutional at the request of Democrats.
What is the FairTax?
It is a form of taxation that is based of the idea of a national sales tax on all new goods and services. This means that once an item has been taxed it will not be taxed more than once meaning used goods will not be taxed (homes, cars, things off ebay, at pawn shops or things of that nature). Additionally under the FairTax saving and investing are no longer taxes so you can save for retirement, education, or for a rainy day without being penalized for making responsible fiscal decisions (a truly original idea: being awarded for sound decision making and personal responsibility). Keep in mind that under the FairTax education is not taxed because education is an investment in and of itself. Finally the FairTax allows for a prebate to create a progressive** form of taxation (I'll explain this later).
How does the Fair Tax work?
Since all the current taxes under the FairTax will be eliminated you now have more money to spend and invest. The FairTax fosters fiscal responsibility by removing the negative aspects of taking another job (a higher tax bracket) and removing the punishments for saving and investing (capital gains tax and the increase income from each pay check due to the elimination of the income tax). The FairTax is a 23% national sales tax that is added only at the final point of sale not through the process. This means that each transaction for each part of the lawnmower or to make the loaf of bread is not taxed, only the final cost that you see at the register.
When you walk into the store under the FairTax the price that you see on the shelf is the price you will pay at the register. And because there are no more corporate taxes, no embedded taxes will be passed along to you. That means on average you will pay only 1% more after the FairTax than before and you will get your entire paycheck. Sounds like a great deal.
But is this not a regressive tax? I guess it is time to inform you of the prebate.
What is the Prebate?
The inventors of the FairTax realized that the FairTax upon its original plan was regressive in nature. To solve the problem the founders of the FairTax decided that no person no matter the income level should be forced to pay for the basic necessities of life so they decided to implement the prebate. The prebate is a rebate for the taxes that would be incurred on spending up to the poverty level. The poverty level is determined each year and adjusted for inflation by the Department of Health and Human Services. The poverty level is by definition the minimum funds that would be necessary in a year to be able to afford the basic necessities of life.
Source: FairTax.org
The prebate will be sent out each month to cover the cost on taxes up to poverty level spending. This could be done electronically into a credit account (several major credit card companies have expressed interests in even covering the cost incurred by the government).The prebate ensures that those who do not have the ability to pay are not taxed or taxed at a lower level than those who have the ability to pay. For instance a family that would spend at twice the poverty level would incur a taxation rate of 11.5%. Those who spend no more than the poverty level would have a taxation rate of 0%. Those who spend more will be taxed at a rate that will come infinitely close to the 23% tax rate. The prebate ensures a progressive form of taxation is maintained and helps foster savings and investments by effectively giving the individual the control over their tax rate level.
Why not just not tax food and other necessities instead of issuing the prebate? The answer is simple. Those who have the ability to afford more will do so giving them tax reductions on things that are no longer necessity but luxury.
The FairTax is not a regressive form of taxation. No non-citizen would be eligible for the prebate.
Moving the Burden off of US Citizens?
The FairTax because it is a nationalized sales tax and not based on income or investments will then tax every foreign visitor, illegal alien, and even the black market economy of drugs, prostitution, and the like. How? The FairTax is a nationalized sales tax meaning that every new item purchase is taxed. Stores don't ask to see ID's, passports, or as to see where you are working. Earnings are not reported and therefore privacy is ensured.
Those who were not previously taxed for their income because of legality of the profession or because they were aliens to the country suddenly are being taxed.
No More April 15th Headaches
Because taxation would be a national sales tax and not based on income there would be no more tax day. No more countless hours crunching numbers, no more wasted money to pay advisors or software to file your taxes, and no more stress. Best of all you would not have to validate the government deductions or be subject to a tax audit making you waste more of your time and remove your privacy.
Each year you would file a single sheet with the government with updates on bank or address information, the number of dependents living in your household, and the Social Security number for purposes of the prebate. No non-citizen would be eligible for the prebate.
FairTax: More Power to the People
Political commentators and news agencies always purport the idea of letting the people speak up. In all honesty though we have few avenues for recourse and politicians seem generally unwilling to listen. The FairTax solves that problem too. If Americans do not like what the government is doing and want to help change its course all you have to do is reduce your spending and put the politicians back into their place. That is a representative for their constituents not looking after their own self interests.
The FairTax gives power to the people to determine their own tax rate and truly get ahead by removing the punishments the current tax code instills. More power, more control, and a fair tax code.
Best of all the FairTax upholds the original principles the Constitution without a separate amendment. You have your right to be secure in their papers that the 4th Amendment provides. Since as originally written the Constitution is a limit on governmental power not the people this is a movement back to the original founding principles of our country.
FairTax Benefits
In addition to the benefits I described above the FairTax has several other benefits. Since America will no longer have a corporate tax, the United States will become the ultimate tax haven for corporations around the world. Corporations will be flooding into this country starting a landslide of economic growth that has not been seen in decades and would rival China's economic growth of the past 3 decades. This means more jobs, more pay raises, and more incentives to work harder. 5% unemployment will no longer be considered full employment. People of all classes especially those in the lowest income or those will little educational training will benefit the most.
13 trillion...Its just a number right? Wrong? $13 trillion is currently being held in offshore accounts to avoid the overbearing US tax system. It is just sitting not working to the advantage of you and me. When the overbearing tax system ends, these funds will return to the saftey of America. These funds can be spent and invested. Simply stated this means economic growth and in turn job growth and security.
The FairTax eliminates the IRS. Possibly the most hated agency in America and an unnecessary government bureaucracy will be eliminated in favor of a far more manageable and cost effective system of tax enforcement. Instead of over 200 million people and entities to enforce, enforcement becomes easier and cheaper because taxes would only have to be collected from the final point of sale purchases and a handful account for over 90% of all economic transactions in the US a year. A study done on the IRS found that less than 30% of the time when an inquiry was made for tax information or help that a correct answer was given the first time. This only adds to the aggravation of tax payers who will then have to go through a tax audit and get assessed fines for a mistake made by the IRS.
The FairTax eliminates over 70,000 pages of regulations in favor of a simple transparent system of just over 100 pages. This means no longer will politicians be able to favor one group over another since income and corporate taxes are gone. The class warfare rhetoric will be a thing of the past since every income group pays the same rate. Transparency and simplicity means less political rhetoric, tax evasion, and influence of lobbyists.
Current Efforts
The FairTax is a nonpartisan tax policy that of all alternative forms of taxation has the most political support by our leaders 73 in the House of Representatives and 5 in the Senate. To view view current Congressional leaders who support this movement click here. Checkout the Presidential support here. You can view Congressional co-sponsors here. If your representative does not support the FairTax send them an email or give them a call. Let them know why they should support the ultimate bailout plan for Americans.
To become a citizen co-sponsor of House Bill 25 with Sponsor Georgia Representative John Linder (R) click here.
Conclusion
We need capital and we need it now. This is the real problem in the credit crisis. The average American is in debt. The answer is simple and will resolve many problems at once in adopting the FairTax. The FairTax takes away the punishment for providing capital by no longer taxing investments and savings. The FairTax will spur economic growth. The FairTax will create unprecedented job growth.
Imagine an America where you are no loner penalized for responsibility, have to give up your privacy at tax time each year, and have the possibility of being audited and being heavily penalized for a tax system that is so complex many at the IRS cannot give you a right answer.
The FairTax can change the American economy but it needs your support.
Instead of the government taking more of our hard earned money and telling you what we need to do with our own money, tell the government you want to keep your own money. Tell them you don't want to be punished for working hard and making sound economic decisions. Tell them you want a real change and an end to class warfare. Tell them you want a permanent solution that does not risk our tax dollars and instead want a change that allows us to keep and invest our money, not theirs, as we deem fit. The FairTax is the bailout the average American needs now!
To find out more on the FairTax or learn how to support the FairTax visit FairTax.org or to become a citizen co-sponsor of House Bill 25 with Sponsor Georgia Representative John Linder (R) click here.
Definitions
*regressive - a form of taxation the taxes those most who have the least ability to pay (i.e. Social Security tax)
**progressive - a form of taxation that taxes people according to their ability to pay (i.e. FairTax)
