1Declaration: Free Markets, Free People, Free Minds

A little confusion seems to be out their with the Fair Tax so I will do a brief recap of the Fair Tax. The information is widely available for FairTax.org and numerous books.

The Fair Tax or HR 25 is a complete replacement of the current tax code. The Fair Tax will repeal all payroll, income, savings, investment, estate, gift, and death taxes. The Fair Tax is a 23% federal sales tax on the final purchase of any new item or service. Used items or items produced in the home are untaxed. The Fair Tax does not change any current government program like Social Security or Medicare. The only thing that changes are how taxes are collected.

Under the Fair Tax productivity and hard work are no longer penalized as taxes are no longer based off of your income. Likewise people are free to save and invest without paying taxes on the interest or resulting income from a stock, CD, or other investment related transaction.

Under the Fair Tax you will receive your full paycheck.

The Prebate:

Under the Fair Tax every citizen in the United States will receive a prebate each month to cover the taxes on spending up to the poverty level. The prebate is dependent only on family size and the current poverty level rate as determined by the Dept. of Health and Human Services (In some cases the poverty level is also dependent upon the state of residence). The prebate will be adjusted for the rate of inflation yearly in accordance with inflation changes by the poverty level.

Under that Fair Tax your income is not reported to the federal government. The only thing reported is your employment status by the company of employment to determine Social Security status.

To clarify. The Fair Tax prebate is not based on income. A single person with no children will receive $196 per month no matter their level of income. To the prebate size you would receive each month please visit FairTax.org prebate levels.

Since taxation is based on spending, those who spend more will pay more. If you don't spend above the poverty level you don't pay. A family that spends twice the poverty level will have a tax rate of 11.5 percent. As spending increases the rate of taxation will increase until the rate reaches 23% because of the prebate. Taxation is totally voluntary under the Fair Tax. Because of the prebate the Fair Tax is a progressive tax.

I hope this recap clarifies some misconceptions that have popped up about the Fair Tax.

Well I got too busy yesterday and really just forgot but I hope you had a Happy Tax Free Day. Yesterday was the first day of the year where you finished paying your federal income taxes and began earning your money. That's right! Up until yesterday April 23rd you were working to pay your taxes for the year.

If that makes you feel good I hate to think what makes you feel terrible.

With the Fair Tax you have the decision when and who to pay taxes to. If you don't like what the government is doing, stop spending. If you like what they are doing spend more. If you can't afford taxes you won't pay as long as you live within your means.

To find out how to change the tax system please review my blog or go to FairTax.org.

Hope is just a desire. Change can happen, but you have to make it happen.

One of the most common questions on the Fair Tax is what exactly is the "prebate" is and how it would work. It is a simple concept that upholds the basic principles of the founding of our government that "all men are created equal."

The "prebate" is by definition a rebate for the taxes that any person would incur up to the poverty line as designated by the Department of Health and Human Services. To further define, the poverty level is the minimum level of which must be earned to be able to provide the basic necessities in life. This figure is adjusted yearly for inflation, takes into account for family size, and in some instances your state (Hawaii and Alaska). The poverty guidelines can be found a the Department of Health and Human Services Website if you have questions about your current level of income as regard to where it stands.

The "prebate" would be given out monthly to every citizen in the country regardless of income level because no person should be required to pay taxes for the "necessities of life." This sounds like a lot of work but could be done quite simply. Each year you would file a report, a single page, to the US government your family size (parents/guardians and dependents), the names of the individuals, their Social Security number, address, and a financial institution where the money could be electronically deposited each month. Paper checks would also be available for those who choose to do so.

On a side note, some of the major credit card companies have expressed interest in such a system and have indicated that they would be willing to pay the electronic transfer fee's incurred by the federal government to have the privilege of the money transfered to one of their credit cards. Another possibility would be the issuance of a debit card specifically for the purpose of depositing the tax rebate.

Well, How much would I get back?

To find a detailed list of how much your family would be rebated each month and yearly please visit the figures provided by FairTax.org FAQ page. The calculation is easy to perform though. Take the poverty line for your family, as provided by the Department of Health and Human Services, and multiply by .23 (this is the 23% Fair Tax rate on all new items or services). This number is the yearly rebate (divide by 12 for the monthly rebate). A family of 4 would expect to be rebated $337 each month or $4,048 yearly. It is simple math and simple to understand.

Some ask "Why not just untax 'items of necessity'?"

The answer is two parts. First, politicians will never be able to agree which items are "items of necessity" nor should they tell you that these certain items are and these aren't. For instance, potatoes but not potato chips. The choice should be left up to each individual and each family. Second, people who earn more tend to spend more on food and other "items of necessity" of which is not are not necessary to the preservation of the basic levels of living. These items are not "needs" but "wants" like buying a Jaguar versus a Honda. Both items provide transport but one is pure luxury. Basically, no person should have to pay taxes on the "necessities of life."

What does this mean? Quite simply, the Fair Tax is voluntary. If you decide to save your money or become more frugal with your spending you have no tax burden because of the "prebate". It is your choice. Also remember that taxes are only paid on new items or services so buying that used car or house will never result in taxation.

For more information on the Fair Tax view my March 2008 blog archives or visit FairTax.org.

----------------------------------

Tax day is just around the corner. To help put a stop to thousands of wasted man hours and money just to prepare your income tax (not to mention the headaches of just trying to figure out how to compute them or getting the IRS to help you and give you a right answer) please sign the petition at ChangeDC.org by April 15th, 2008. Be part of the solution and take a stand for Fairness in our tax system!

Who pays taxes? Great question. The common answers will be income earners, investors, and corporations. What if I told you that corporations don't really pay taxes? You would say I'm crazy right. Well call me crazy then but Nobel Prize winning economist Dr. Milton Friedman agrees with me. He stated in a President's Advisory Panel hearing for Federal Tax Reform on March 31, 2005 that, "[a]ll taxes ultimately-the consumers pay the taxes. Nobody else pays the taxes. Corporations don't pay taxes. The collect them, but they don't pay them."

Still think I'm crazy? Well here's why Dr. Friedman is correct in his assertion.

In every process of manufacturing corporations, companies, and etc. pay taxes on this things that they buy to produce their products. For example, consider some of the processes in making something as simple as cereal. First the grains must be grown by a farmer who pays for a harvesting machine, fertilizer, and pesticides. He pays taxes for everyone of the products that the previous manufacturer had to pay for the chemicals, metal, or plastics to create those products who likewise had to pay the taxes. After the product is harvested it has to go to the mill to get turned into a usable product and they add on their own tax burden into the final cost of their product. Finally, the cereal manufacturer creates the cereal, paying taxes on all the purchases they have made including the plastic bags and cardboard boxes. All these taxes get added up and passed onto YOU the consumer who buys that item.

In addition don't forget about the cost of the human element as well. Corporations must take into account the pay increase that will be required because of income, pay roll taxes, and their matching "contributions" for Social Security and Medicare. These all get added into the final price of that box of cereal, loaf of bread, or other products that you buy.

A Harvard study done by Dr. Dale Jorgenson concluded that 22% of the total cost of the item are these taxes that are added onto every step of the manufacturing process and then are graciously passed onto you. Great isn't it!

That means even those people who fall into a category where they pay no income taxes pay these taxes. Not to mention the fact that they don't take home their full paycheck each month making life even more difficult for them and unfair. On average about 25% of a paycheck is deducted due to income taxes. Don't forget to add on your contributions for Medicare and Social Security which in some cases mean that over 30% of your paycheck is never reaching your bank account.

Now let's take into account what the Fair Tax will do.

The Fair Tax as already stated is a national sales tax that will be added only onto the final purchase of a NEW product or service. The sales tax rate will be at 23%.

But wait, are price going to increase by 23%? The simple answer is no. Since corporations will no longer have taxes to pay or contributions to make towards Social Security or Medicare they will be able to decrease their prices on their products around 22% due to the embedded taxes that are currently added at each step of the process. Some corporations will try to maintain their prices at the current rate but as smaller companies who wish to be more competitive and gain traction versus larger entities, the larger entities will be forced to knock down their prices.

On average the price of products will only increase by a single percentage point. That is $.01 more for each dollar spent. This is now the time to come out and say that this is a plan to increase revenue for the government. Wrong! Don't forget that you will be receiving your entire paycheck with no taxes or contributions taken out. In addition you will be able to save and invest without penalty.

Finally, if you so desire you can cut back your spending and pay no taxes by spending only up to the poverty line. Why? Simple, every American citizen will receive a pre-bate each month through wire transfer to a credit or checking account or through a check covering the taxes on spending up to the poverty line.

The Fair Tax is totally voluntary, if you don't want to pay you can just save your money.

Look for more posts in the coming days and weeks about the Fair Tax.

Have questions or comments, please post a comment or send me an email to srk.sb6@gmail.com.

-----------------------------------------------------

To take action now go to changedc.org or visit fairtax.org to sign a petition that will be presented to our elected officials and political candidates on Tax Day 2008 (April 15th for those of you not in the know). Let your voice be heard. For more information or to see other ways you can join millions of other supporters around the country in spreading the message about the Fair Tax now, visit fairtax.org or pick up one of the two books written by Neal Boortz and Congressman John Linder that are listed in my "Try Reading Something" section.