The Fair Tax: Is It Fair?

What is the Fair Tax… other than the Libertarian platform for tax reform?  According to FairTax.org, “The Fair Tax Plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement, and, through companion legislation, repeal of the 16th Amendment.  This nonpartisan legislation (HR 25/S 1025) abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax.”  It sounds like a lot, but it is a relatively simple idea… and one that could possibly simply by the tax codes.

We all know that the federal government needs taxes in order to pay for things.  Up until the passage of the 16th Amendment almost 100-years ago, the government collected its tax dollars from alcohol sales.  But since the amendment’s passage, it’s been income taxes, which have become more and more complex over time.  In 1913, there were only 400-pages of federal tax codes, regulations, and IRS rulings.  Today, that number has grown to 73,608-pages.  And the compliance burden on the taxpayers to pay their taxes correctly is costing us $431.1-billion a year.  This can be broken down into Time Value Costs ($377.9-billion), Direct Outlays ($31.5-billion), IRS Administrative Costs ($12.4-billion), and Comprehensive Tax Audits ($9.3-billion).  So basically, we are spending 30% of our tax dollars just to pay our taxes.  The Libertarian Party’s approach is to simplify all of this by abolishing all federal income taxes and replacing it with a simpler federal retail sales tax.

With the Fair Tax, people would take home 100% of their paychecks… except where state income taxes apply.  It would establish a uniform tax across the board on all new items at 23%.  Why 23%?  At that level, it’s becomes revenue neutral.  The government takes in exactly what it is taking in now.  A large argument against such a tax plan is that it would favor the wealthy over the poor as the poor already have trouble being able to afford items.  This is solved though by a monthly prebate that all American citizens (those with Social Security cards) would receive to cover the tax spent on necessities up to the federal poverty level.  A single person would receive a monthly prebate of $199.  A 2-adult, 2-children household would receive a monthly prebate of $537.  (Numbers based on the Department of Health and Human Services 2008 Poverty Guidelines)  And also note that I’ve been saying that the Fair Tax only applies to new goods.  That’s because you would not be paying the tax on used items as they were already taxed once before.  So if you bought a used car, a used house, use clothing, etc., there would be no federal tax at all.  It’s only applied to new goods and services, and it can only be charged one time… right when you make the purchase.

Did you know that when you buy something, that you are paying for the company’s corporate taxes plus their compliance costs?  Corporations have to pay payroll taxes and make contributions into Social Security and Medicare.  All of this is passed along to the consumers at a higher price.  With the Fair Tax, corporate income taxes would be abolished, too.  No longer would corporations have to hide these taxes in higher retail prices.  Prices are allowed to drop then without revenue or profit being affected.  This could allow a company to employ more people.  And before you start thinking that corporations don’t pay taxes under the Fair Tax, FairTax.org states, “Corporations are legal fictions that have not, do not, and never will bear the burden of taxation.  Only people pay taxes.  Corporations pass on their tax burden in the form of higher prices to consumers, lower wages to workers, and/or lower returns to investors.”  And when it comes to jobs and exporting/importing goods, “the Fair Tax does not burden U.S. exports the way the current income tax does. The Fair Tax removes the cost of corporate taxes and compliance costs from the cost of U.S. exports, putting U.S. exports on a level playing field with foreign competitors. Lower prices sharply increase demand for U.S. exports, thereby increasing job creation in U.S. manufacturing sectors.  At home, imports are subject to the same Fair Tax rate as domestically produced goods.”

So what about Social Security and Medicare?  They come out of our paychecks.  Our tax dollars specifically pay for them.  They actually stay the same… maybe coming out a bit ahead.  Instead of the money coming from our paychecks, they come from the tax dollars on the new goods and services we buy.  Spending by Americans is usually more constant than income levels.  Currently, Social Security and Medicare funds are taxed three times: 1) when payroll taxes are initially withheld, 2) when those withheld payroll taxes are counted as part of the taxable base for income tax, and 3) when the promised benefits are finally received.  This would completely negate all of that until you spent it on some new good or service.  And with the Fair Tax, both programs would have a wider base participating in the program… which, if you think about it, would include all members of Congress.

So are there any countries today that use this type of taxation?  The simple answer is no though the states of Florida and Texas use a similar system for their state taxes.  However, in England after the defeat of Napoleon, did repeal its income taxes and had major economic gains which only stopped with the re-imposition of the income tax.  Now what about state sales taxes.  States will have the choice to participate or not… meaning they can keep their current state sales tax on items or they can choose to go to the federal sales tax, in which they would receive a fee for their participation that would take the place of their state sales tax.  They cannot do both.  And with the IRS gone, who collects the taxes?  Pretty much everywhere you buy things… just like they do now with state sales taxes.  In the end, you get to determine how much you pay in taxes by how much you spend on new goods and services.  This is also the only plan that calls for the full repeal of the 16th Amendment, though even without it, there would still not be a federal income tax and a federal sales tax.  The 16th Amendment only gives Congress the right to tax our income, but it doesn’t state that there has to be an income tax.

I want to close with a few examples from FairTax.org.  This might help in seeing how this would affect us all.  Under our current income tax system, let’s say that you earn $100.  You get to keep $77, so your income tax rate is 23%, and the government keeps $23.  Now let’s move to the Fair Tax.  You again earn $100.  You get to keep $100, and you choose to spend $77.  Your Fair Tax rate is 30%, and the government only gets $23.  Now that was based just on an individual.  Now let’s look at different income levels and how they are taxed under the Fair Tax.  Let’s say a billionaire (who is married with no children) spends $10-million and pays a tax of $2.3-million.  He gets a prebate of $4,697.  His tax rate is 22.95%.  Now let’s look at a couple with no children that spends $50,000.  They pay a tax of $6,803.  The prebate check would be the same as the billionaire’s at $4,697.  Their tax rate would be 13.6%.  For a quick comparison to today’s income taxes… that same couple that would earn $50,000 would pay a total of $7,918 in taxes (income and payroll taxes).  Their tax rate would essentially be 15.8%.

There is a lot of information on the Fair Tax… far more than I can get into.  The website does a fairly good job of breaking it all down and making it easy to understand.  Whether you are leaning for or against it, I highly encourage everyone to go to the site and look over the details.  It may even answer some questions you might have that I haven’t addressed.  This was only written to be a summary and to be a brief introduction… not an endorsement.  So check it out and feel free to leave feedback below.  There will also be some added shortcuts linked below, too.

SIDENOTE:
All quotes are from FairTax.org unless otherwise stated.

LINKS:
Thumbnail Sketch of the Fair Tax with FAQ (pdf)
Income Tax vs. Fair Tax vs. Flat Tax (pdf)
The Fair Tax and Business
How Fair Tax Works

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Throwing Away A Vote

If you were to go tell someone at this moment that you were voting for a third-party candidate in the upcoming presidential election, most people would give you a dumb look which would be followed by a couple of different responses.  Some would say that you are throwing your vote away by doing that while others would say that you just shouldn’t vote since it wouldn’t count anyway.  The most audacious response is that you are taking away a vote from one of the main candidates… the democrat or republican and that’s why you are voting for that person and even why that third-party candidate is even running.

But let me ask it this way.  How is it throwing your vote away by voting for the candidate you want to win?  We will use our current election and candidates for examples.  So we have Obama (Democrat), Romney (Republican), Johnson (Libertarian), and Stein (Green).  According to a recent CNN poll that actually included the two main third-party candidates (most polls only give the two main choices), Johnson is getting 4% of the vote with Stein getting 2%.  When looking at the numbers with and without the third-party candidates listed, it would seem that Johnson is getting votes off Romney and Stein is getting them off Obama.  But that’s just going by the numbers and not the people behind them, and I’m not about to delve into that data on that.  So don’t worry.

For our example, we have a 1 in 4 chance of picking the winner.  So you have a better chance of picking the losing side.  So if you are basing the claim that voting for a third-party candidate is throwing away a vote because that person can’t win, then shouldn’t your vote be automatically switching to whoever is in the lead?  Otherwise, you are throwing away your vote for the candidate that is trailing.  There is a flaw in that overall thinking.  Besides, wouldn’t it be throwing away a vote if I was voting for Obama because I didn’t want Romney to win (or vice versa)?  Maybe the person voting for the third party doesn’t want either main party candidate to win.

Third-party candidates tend to be more toward the center.  I’m not saying all of them are, but the major ones tend to be.  While the two main parties (Democrats and Republicans) continue to move away from each other, it’s leaving a vast void in the center where many voters are.  In that void, we can plug in both the Libertarian Party and the Green Party.  Already, more than 1/3rd of Americans are wanting a major third party.  The Democrats and Republicans seem to be more polarized and more focused on making the other side lose the next election rather than coming up with sensible solutions to the major issues.  Why has this become even worse in that past few years?  Because the moderates of both parties are either being voted out or they are choosing to get out because of how bad it is. At a time when we need them even more than ever, they are jumping ship.  The moderates were usually the ones that kept the extremists in each party in check.  They usually worked across the aisle to get things done.

We, the voters, have been brainwashed from the beginning to think that there are only two political parties worth considering.  The only thing that the two main parties can agree on is that they don’t want a viable third-party to be included, and they go to extraordinary lengths to make sure that doesn’t happen.  Even now, the Romney campaign is attempting to keep Johnson off the ballot in several states.  The Johnson campaign is fighting these attempts, but it is costing them money that they can’t replace as easily as the Romney campaign can.  Political parties were never envisioned as part of our political sphere when our Founding Fathers set everything up, but they developed as a result of different ways of thinking (i.e. strong central government vs. states rights).  Over time, these would develop into the Democratic and Republican parties.  There have been others throughout our history… including the Progressive “Bull Moose” Party which ran Theodore Roosevelt in 1912.  And here’s your shocker.  That third-party candidate (Roosevelt), actually came in second place… beating out incumbent Republican President William Howard Taft.  The Democrat, Woodrow Wilson, won the election.  The Progressive Party would eventually fold back into the Republican Party within a few years though.  In more recent times, Ross Perot in 1992 received 18.9% of the vote.  Some say he cost George H. W. Bush reelection, but that’s assuming that all the votes that Perot received would have gone to Bush had Perot not been running, and we can’t assume that.  Same as we can’t assume that Ralph Nader tipped the balance in 2000 for George W. Bush by taking away votes from Al Gore in Florida.  Our mentality is set to assume that since it makes up the difference, then those votes must have gone there.  How many times have you heard that a certain third-party candidate is running just so the Democrat or Republican loses?  These are usually partisan voters who can’t see beyond their own candidate to realize that this is someone running to oppose both main candidates with different ideas.

For the first time this year, the Green Party is receiving matching funds.  This means they are getting money from the government that the Democratic and Republican parties are already entitled to each election.  If the Democratic and Republican parties were only allowed to use their matching funds and nothing else, then this would put them on a level playing field, but the two main parties won’t be doing that.  To even be included in the debates, the parties must poll at least 5% in several polls.  Here’s the catch, most media outlets don’t even include them in the polls to begin with.  So the dumb question of the day is how are these parties supposed to achieve 5% in the polls if they aren’t even included.  The CNN Poll that I listed earlier was the first one I’ve seen that has actually done so.  The Democrats and Republicans have rigged the system so that you only think there are two candidates until you get into the voting booth, by which time you’ve usually made up your mind.

If we absolutely must choose between two parties, then why not pick the Libertarian or Green parties?  It’s never been said which two parties we have to choose between.  In most democracies, there are more than two parties.  We are the rare one that only has two.  Any less, we’d practically be a dictatorship.  It’s time Americans realize that there are more than two parties out there and that you might be voting for the wrong one.  We keep complaining about how things are done in Washington, but we keep switching back and forth between the two parties that are creating the problems.  The pendulum just swings back and forth.  Maybe it’s time we throw a kink into it and make it go a third way… or at least stop in the middle somewhere.  I encourage all voters to make sure that they are voting for the candidate that best matches where they stand on the issues.  Don’t assume that you do.  Do the research.  If you are just willing to continue to vote for the same two political parties (despite where you might stand on issues) because they are the only two serious contenders, then you have only yourself to blame for the continued problems and the slow pace at which we attempt to solve them.

Does it mean that a third-party candidate will win in November?  Probably not, though anything is possible in politics.  But that doesn’t mean that it can’t happen down the road.  We must make a stand somewhere at some point, and with the way things are going, why not let it be now.  Major third-part candidates such as the Libertarian and Green parties should be included in any national election poll, and they should be included in the debates.  The American people have the right to hear what these candidates have to say.  The media outlets also need to step up and start including them in interviews and political segments.  It’s time the mentality regarding these third parties changes.  They should be serious contenders.  Throwing away a vote?  That only applies if you are voting by determining the lesser of two evils.  How do you know you aren’t voting for the better of two liars?  Third-party voting isn’t throwing a vote, it’s making a loud and clear statement that no longer will we be subject to the duocracy that has crippled our government and our politics.

NOTE:
For the sake of this entry, major third-parties were any third-party that has access to at leas 270-Electoral votes.

LINKS:
Election 2012 (Indeclaration)
CNN

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