Replace All Federal Taxes on Income with the Fair Tax Act , HR 25
Front page FairTax--Houston Chron editorial section this morning
It’s time for a second tax revolt
by KEN HOAGLAND
HOUSTON CHRONICLE
Dec. 12, 2009,
More than 200 years ago a new idea about the rights of individuals and the rights of government began as a tax protest in Boston Harbor.
“No taxation without representation” was the rallying cry that led to the new concept that all government power and authority should derive from the consent of those governed. Is a second American tax revolt now needed to restore that noble but increasingly tattered idea?
Somehow, these many years later a new American aristocracy made up of both parties is taxing generations of future citizens, not even yet born, in order to secure mind-numbing levels of national debt today. With government debt now totaling more than $500,000 per household, the voice and best interests of the average American seem lost. We have taken a destructive national path of spending beyond our means that retards job creation, shreds responsible fiscal policy and undermines the pursuit of happiness itself.
The second American tax revolt might very well be found in HR25, the long pending FairTax legislation that most in Washington love to hate. The FairTax replaces all federal taxes on income with a simple and transparent tax on personal retail consumption. The FairTax raises the same revenues now raised but in a way that helps the economy rather than hurting it and, most importantly, in a manner that restores the role of the American citizen.
Today our federal taxes are hidden from plain view through withheld payroll taxes and by embedding tax costs in the price of American goods and services. The relationship between personal wealth and the cost of government has been effectively hidden, making almost impossible any real check and balance on government spending and self-defeating debt. For candidates from both parties, the promise of new spending buys elections and to many citizens it is “free money” that is being thrown at real problems and needs.
The FairTax ends embedded tax costs, puts the cost of the federal government on every receipt and shifts national taxation away from what goes into the economy — work, savings and investment — to what comes out of the economy — consumption. The FairTax expands the tax base so that nearly every American sees a tax reduction. The average tax bill (adding together Social Security/Medicare and income taxes) now amounts to more than 30 percent of what is earned. The FairTax caps taxation at no more than 23 percent of what is spent. In essence, those who spend more pay higher taxes without exceptions granted by Congress to the favored few with tax lobbyists.
The FairTax protects the poor and middle class in several ways. First, a monthly “prebate” paid to every family reimburses the FairTax paid on retail spending up to the poverty level, wiping out federal taxes on those at or below the poverty line while also eliminating the highly regressive FICA payroll tax. For a middle class family of four, the prebate allows more than $28,000 of federal tax free spending a year on top of an overall tax reduction. Advanced economic modeling shows that the poor and middle class are the biggest beneficiaries of the FairTax in terms of tax reduction.
By eliminating all federal withholding and payroll taxes, the FairTax brings taxation into the open so that average Americans can fairly debate the cost/benefit of devoting personal wealth to so much government spending. It is a desperately needed awareness if we are to control our government.
At the same time, shifting away from taxing labor, manufacturing, investment and upward mobility itself will make the United States the most favorable tax environment in the world. This will bring trillions of dollars of private investment, now offshore, into our economy. Without borrowing against the future earnings of our offspring, this private investment creates jobs, better benefits and a new era of economic growth where productive American workers are again in high demand.
The FairTax doesn't pit the poor against the rich or Wall Street against Main Street. While every economic level benefits under the FairTax, the poor and middle class see the greatest immediate tax benefits. If there are losers they are congressional committees who can no longer sell pieces of the tax code, illegal immigrants and those in the $1.5 trillion a year underground economy who become taxpayers as consumers and foreign producers who now enjoy a tax advantage over American manufacturers.
But because the FairTax ends the $1.5 billion a year tax lobby business along with congressional power over the tax code, it will take another tax revolt to trump the narrow self-interests of Washington insiders. The good and bad news is that a relative few, but politically powerful and influential, Americans profit richly from the corrupted tax system. With all their profits and power, can they be bested by hometown Americans across the political spectrum? Only if we remember that the first American tax revolt gave us that right.
Hoagland is chairman of the FairTax national campaign and a long-time Houston resident. His book, “FairTax Solution,” goes on sale in March.
by KEN HOAGLAND
HOUSTON CHRONICLE
Dec. 12, 2009,
More than 200 years ago a new idea about the rights of individuals and the rights of government began as a tax protest in Boston Harbor.
“No taxation without representation” was the rallying cry that led to the new concept that all government power and authority should derive from the consent of those governed. Is a second American tax revolt now needed to restore that noble but increasingly tattered idea?
Somehow, these many years later a new American aristocracy made up of both parties is taxing generations of future citizens, not even yet born, in order to secure mind-numbing levels of national debt today. With government debt now totaling more than $500,000 per household, the voice and best interests of the average American seem lost. We have taken a destructive national path of spending beyond our means that retards job creation, shreds responsible fiscal policy and undermines the pursuit of happiness itself.
The second American tax revolt might very well be found in HR25, the long pending FairTax legislation that most in Washington love to hate. The FairTax replaces all federal taxes on income with a simple and transparent tax on personal retail consumption. The FairTax raises the same revenues now raised but in a way that helps the economy rather than hurting it and, most importantly, in a manner that restores the role of the American citizen.
Today our federal taxes are hidden from plain view through withheld payroll taxes and by embedding tax costs in the price of American goods and services. The relationship between personal wealth and the cost of government has been effectively hidden, making almost impossible any real check and balance on government spending and self-defeating debt. For candidates from both parties, the promise of new spending buys elections and to many citizens it is “free money” that is being thrown at real problems and needs.
The FairTax ends embedded tax costs, puts the cost of the federal government on every receipt and shifts national taxation away from what goes into the economy — work, savings and investment — to what comes out of the economy — consumption. The FairTax expands the tax base so that nearly every American sees a tax reduction. The average tax bill (adding together Social Security/Medicare and income taxes) now amounts to more than 30 percent of what is earned. The FairTax caps taxation at no more than 23 percent of what is spent. In essence, those who spend more pay higher taxes without exceptions granted by Congress to the favored few with tax lobbyists.
The FairTax protects the poor and middle class in several ways. First, a monthly “prebate” paid to every family reimburses the FairTax paid on retail spending up to the poverty level, wiping out federal taxes on those at or below the poverty line while also eliminating the highly regressive FICA payroll tax. For a middle class family of four, the prebate allows more than $28,000 of federal tax free spending a year on top of an overall tax reduction. Advanced economic modeling shows that the poor and middle class are the biggest beneficiaries of the FairTax in terms of tax reduction.
By eliminating all federal withholding and payroll taxes, the FairTax brings taxation into the open so that average Americans can fairly debate the cost/benefit of devoting personal wealth to so much government spending. It is a desperately needed awareness if we are to control our government.
At the same time, shifting away from taxing labor, manufacturing, investment and upward mobility itself will make the United States the most favorable tax environment in the world. This will bring trillions of dollars of private investment, now offshore, into our economy. Without borrowing against the future earnings of our offspring, this private investment creates jobs, better benefits and a new era of economic growth where productive American workers are again in high demand.
The FairTax doesn't pit the poor against the rich or Wall Street against Main Street. While every economic level benefits under the FairTax, the poor and middle class see the greatest immediate tax benefits. If there are losers they are congressional committees who can no longer sell pieces of the tax code, illegal immigrants and those in the $1.5 trillion a year underground economy who become taxpayers as consumers and foreign producers who now enjoy a tax advantage over American manufacturers.
But because the FairTax ends the $1.5 billion a year tax lobby business along with congressional power over the tax code, it will take another tax revolt to trump the narrow self-interests of Washington insiders. The good and bad news is that a relative few, but politically powerful and influential, Americans profit richly from the corrupted tax system. With all their profits and power, can they be bested by hometown Americans across the political spectrum? Only if we remember that the first American tax revolt gave us that right.
Hoagland is chairman of the FairTax national campaign and a long-time Houston resident. His book, “FairTax Solution,” goes on sale in March.
Comment
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Comment by James Tracy Thorleifson on December 13, 2009 at 12:20pm
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At the risk of incurring the wrath of the faithful: Ken accurately diagnoses the ills of our federal tax system. But the prescribed cure, the Fair Tax, suffers two serious flaws. First, the Fair Tax puts the federal government in the business of sending money to the poor in the form of “Prebate” checks, fostering government dependency. The sad history of welfare in this country suggests prebates will prove socially destructive. Second, the Fair Tax makes revenue collection too simple and painless. Federal retail taxes already in place (e.g. the gasoline tax at .184 $/gal) are effectively invisible. Like the apocryphal frog in the boiling pot, the taxpayer will mutely acquiesce as Congress gradually, inexorably, and fatally raises the Fair Tax rate.
A potentially better way to curtail the fiscal shenanigans of Ken’s “new American aristocracy” (i.e. Congress and the political class) is this: make taxation glaringly visible and revenue collection painfully inconvenient. The Fair Tax has merit except for the method of revenue collection. Rather than a federal retail tax, we should retain a massively simplified income tax. With no federal withholding, American households would experience the monthly, and according to Vice President Biden, “patriotic” joy of writing a check to the federal government. Rather than prebates, everybody would enjoy a tax holiday until exceeding a “cost of living” threshold, at which point they join the check writing club. Lower income folks would simply enjoy a longer holiday. As most of you have already cottoned to, this alternative to the Fair Tax is known as the Flat Tax, and in my honest opinion is a superior solution to our taxation woes.
Many of you will correctly protest that we started with a Flat Tax, and look where that got us. Others will point out the abject failure of the tax simplification code 1986. These are valid concerns. My rejoinder is that maintaining just taxation is a never ending battle, and that the Fair Tax is no more of a panacea in this respect than the Flat Tax. Those who think it is had best prepare themselves to get used to disappointment. And for those of you who rightfully detest the IRS, does anybody think the Fair Tax is going to collect itself? (And if anybody thinks that tax avoidance isn’t going to continue to require an oppressive tax collection institution, just take a look at the black market in cigarettes.)
Unlike the half-measures of the past, the key to a successful Flat Tax (as with the Fair Tax) is to eliminate all other forms of federal taxation. This means no separate FICA (Social Security and Medicare) and FUTA (unemployment) on individuals, no federal excise taxes, and above all, no corporate income taxes. In the case of the Flat Tax, it is imperative that only the personal income tax be retained, and that all forms of personal income (wages, dividends, capital gains, interest, etc.) be treated equally.
In addition to avoiding the aforementioned pitfalls of the Fair Tax, a properly structured Flat Tax has one additional benefit: only voters (i.e. individual citizens) are taxed. Freed from taxation, corporations will have less impetus to lobby. By removing corporations from the taxation loop, we restore political power to the individual citizen.
OK, my friends, flame on! :-)
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