Subject: Graduated Federal Sales Tax Comment: Steven Pollak - Individual indepcontractor@hotmail.com April 28, 2005 (Your site would not accept my MSWord document.) The President's Advisory Panel on Federal Tax Reform 1440 New York Avenue NW Suite 2100 Washington, DC 20220 Dear Panel Members: I would like to thank you for taking the time to review all the submissions regarding reforming our federal tax system. It is every citizens hope that our combined efforts will result in positive, constructive changes. However, unfortunately most Americans have little faith that any comments or suggestions submitted to this committee will ever be given serious consideration. I represent the individual American taxpayer who will spend his/her wage earning years living under the duress of being subjected to draconian ordeal of an IRS audit. The horror stories of which are well documented. Like employees of the Internal Revenue Service, by the very nature of your position in government, you will never have to endure such a misfortunate experience. So the general feeling is, how can you possibly have any empathy for those who so earnestly know the need to reform the federal tax code? (I am concerned about being audited just for contacting this committee!) Below is a brief, general proposal presented as an alternative to the present federal tax code. GRADUATED FEDERAL SALES TAX This proposal does not address modifying the federal tax code for businesses. It is a proposal to replace the federal income tax code for individual filers and those who are self-employed, with a graduated federal sales tax similar to Canada’s Value Added Tax, but on a graduated scale. Exemptions Those items exempted would be basic food stuffs, including baby foods, but yet taxing those foods with high sugar content and empty calories, which would impact society’s problem with obesity. Other basic necessities would be exempted such as medicines, all health related procedures, residential housing and basic utilities, such as water, gas and electric, though unfortunately, the later are already subject to taxes. Implementing a federal sales tax on a graduated scale, depending upon the cost of the item purchased, negates the charge that a sales tax is “regressive”. For example: A formula could be devised to tax certain a percentage for any items up to $500; An additional percentage for items from $501 to $1000; and then so on but with wider spreads in between the assessments, capping it at whatever dollar amount the committee deems fair. This is a viable alternative and it is the simplest and fairest of all because the more you spend, then more you pay in taxes. In addition, it would enable the Internal Revenue Service to maintain a portion of its workforce. Compliance The systems to enforce compliance for sales taxes are already in effect for only but a handful of states. Obviously, to implement it on a national level would be more involved but Canada has successfully implemented and enforced its VAT. There would be much to be gleaned from their program. MANY OF COMMENTS AND SUGGESTIONS SET FORTH BELOW WERE GLEANED FROM THE WEB SITE: http://50reasons.blogspot.com/2005/02/50-reasons-i-support-fair-tax.html I, endorse each of proposals as set forth therein. They are fair, logical and deserve serious consideration by thus committee. Thank you. Steven Pollak A GRADUATED FEDERAL SALES TAX WOULD RESULT IN THE FOLLOWING: 1. It allows workers to keep 100% of their pay, with nothing withheld for the IRS or for Social Security and Medicare payments. 2. It is revenue neutral with the present income and payroll tax system, funding the federal budget at current levels. 3. It shifts the tax to consumption. Records show that consumption is more stable than income, therefore the tax revenue stream is likely to be a more stable and predictable amount. 4. It is progressive, a “prebate” of the tax amount up to the poverty level is given to everyone. This means that those spending below the poverty level have a net gain because the “prebate” exceeds the amount paid in taxes. (Under the present system the working poor pay the 7.65 percent payroll tax even if they get a full refund of income tax withheld.) 5. It doesn’t tax pre-owned items –– clothes, cars, homes. Only new items are taxed when sold by a business to an individual. 6. It is expected to remove an average of 22% of the cost of American made goods by removing the built-in payroll tax (the other 7.65% of earnings that employers pay), corporate income tax, and other business taxes that are now passed to consumers as an ““embedded" tax of approximately 22% due to the cascading of income and payroll taxes paid by U.S. employers, at every step of production, to the U.S. Treasury. Competition will cause prices to fall by approximately that amount, on average. 7. It allows families to save more for home ownership, education, and retirement. An average family making $50,000 will have $7,500 more spendable income. 8. It removes the need for formal accounts of the 401(k), IRA, HSA, etc., varieties. Anyone, rich or poor, will be able to set up any kind of savings or investment account without regard to taxes or the government. No special knowledge of tax law is necessary. 9. It makes educational tuition a tax-free expenditure of tax-free income. 10. It eliminates the income tax and the IRS. Members of Congress and the public overwhelmingly agree that the current internal revenue code is cumbersome, intrusive, coercive, and inefficient. 11. It eliminates 90% of the cost of compliance. American families and American businesses waste an estimated $250 –– $600 billion per year (and countless hours of time) doing the paperwork necessary to comply with the current tax code. That is roughly $1,000 –– $2,000 annually for every man, woman and child in the U.S. (Businesses typically pass their tax bills and compliance costs on to the consumer, i.e., individuals and families.) 12. It assures that no American will find, at the end of the year, a need to get a loan to pay taxes as an alternative to penalties, interest, or cheating. 13. The broader tax base comprises everyone spending money in the U.S., including the ten percent of our economy (an estimated $1 trillion) that today is underground or under the table. Under the FairTax, the illegal drug dealer will pay his tax just like the rest of us when he buys his sunglasses, BMW, and other items, as will those who work for cash and undocumented immigrants, all of whom receive government and societal benefits. 14. It encourages work by letting workers keep 100% of their earnings and giving a rebate, in addition, making the notion that “the more you work, the more money you have”, a reality, unlike the current system where welfare is lost when you go to work, so the first dollars earned after taxes just offset what a welfare recipient is currently receiving in assistance, so working is perceived as disadvantageous. 15. It allows more of the lower income families to become home owners by allowing a second job income above their current income (all tax free) to be applied to a mortgage. Money for down payments for homes is also saved totally tax free, causing it to accumulate faster. 16. It allows families to retain farms and businesses in the hands of those who built them through the elimination of the death tax. 17. It allows families to give tax-free assistance to one another by eliminating the gift tax. 18. It gives individuals (and businesses) the right to donate as much as they want to in a given year to charitable causes, without concern for exceeding an allowed limit on giving. Social Security and Medicare 19. Eliminates the regressive payroll tax that hurts the poor. Currently, every one of us is taxed a minimum of 7.65% on our first-dollar of wages up to $90,000 (the cap for FICA, not Medicare), if we earn that much. It provides funding for Social Security and Medicare at a level equal to the current system. 20. It provides that all 290 million Americans and 51 million visiting tourists fund Social Security and Medicare with their purchases. Today only 110 million workers fund these programs via deductions from their paychecks. 21. It assures that the wealthiest Americans will be voluntarily helping to fund social security with every last dollar they spend above the poverty level. Today, earnings are subject to FICA taxes only up to $90,000. The wealthiest Americans therefore do not pay into the system above that amount. If their earnings are from investments, no earnings fund the Social Security system. The Economy Economic Growth and Competitiveness 22. a. Internet Sales A Graduated Federal Sales Tax should be extended to all purchases made over the Internet from U.S. based businesses but not individual sellers. This alone, would generate significant revenue 23. b. Illegal Residents Conservative estimates are that 11 million illegal aliens presently reside in the United States and many say it is probably closer to 18 million. The vast majority are paid under- the-table and do not pay any state or federal income tax, yet they themselves severely “tax” our community’s resources. They have tremendous purchasing power and a Graduated Federal Sales Tax would rectify that inequity. 24. c. Illegal Activities Those who engage in criminal activity, buying and selling drugs, guns and stolen merchandise, etc., do not pay taxes on their ill-gotten gains. A Graduated Federal Sales Tax would not affect their enterprises but it would tax any and all of their purchases. It increases investment in business by eliminating the capital gains tax. 25. It allows for better planning by businesses, because they no longer have to consider the tax implications of everything they do. 26. It makes American products more competitive overseas by removing the embedded tax from them, thus lowering the prices of our exports, which compensates for low foreign wages. 27. By making our exports more competitive overseas, it lowers our balance of trade deficit and increases employment at home. 28. By removing the embedded tax from American products, it makes them more competitive with imports here, compensating for the low cost of imported products from which taxes have been removed before exportation to the U.S. 29. It encourages investment in companies located in the U.S., thus providing a home for money already in the U.S. and attracting more. The U.S. will be the most attractive tax-free haven in the world for doing business. 30. It encourages repatriation to the U.S. of money held by U.S. individuals and companies now in foreign countries, with no tax consequence. American companies will return from offshore and overseas. 31. It results in Federal Reserve rates being based on current consumption, which is rather stable, instead of future earnings, which are less predictable, resulting in surer inflation prevention. 32. It moves many individuals now providing tax advice (return preparation, advice, accounting, planning, and records maintenance) into an expansive economy where they will be producing goods and services. There they can add to the standard of living of all Americans and likely earn more than they do currently, instead of shuffling paper for the government (and not contributing anything economically to society). Churches and Non-profit Organizations 33. All contributions to Churches and other non-profit organizations are made tax-free. These organizations no longer will bear the expense of filing tax returns with the IRS and paying their half of Social Security and Medicare payments for employees. In order to purchase goods and services tax free they will just have to apply to the state sales tax authority for a qualification certificate as a bona fide not-for-profit organization operated exclusively for religious, charitable, scientific or educational purposes. 34. It restores to churches and non-profit organizations the 1st Amendment right to engage in free speech, without fear of losing their tax-free status. Rights and Freedoms 35. It restores the 4th Amendment, protecting against unreasonable searches and seizures, from which the IRS presently is exempt. 36. It restores the 5th Amendment, which guarantees the right to due process. Under current systems the IRS has their own courts with their own set of rules not included in the 5th Amendment. 37. It restores individual privacy. You no longer have to report where you work, what you are earning, and what you are doing with it. (Employers will report your earnings to the Social Security Administration for determination of your social security benefits.) 38. It relieves citizens of the risk of facing the shift in burden of proof that is so common with the current system, i.e., the taxpayer is guilty unless proven innocent, but even the IRS staff sometimes gives conflicting interpretations. 39. It eliminates the need for courts to decide which divorced parent gets to take the tax deduction for children. Government and Educational Entities 40. Without FICA to pay, most states, counties, municipalities, and school districts will see a large increase in their available state budget revenues, additionally lowering the overall tax burden (State & Federal) for most Americans. 41. It eliminates the administrative costs incurred by states in collection of state sales taxes because states will piggyback the state tax collection onto the national tax collection, for which they are compensated by the administrative cost give-back. Politics 42. It cleans up a major flaw in campaign financing, eliminating campaign donations for "tax favors". The Environment 43. It’s good for the environment. Reportedly, the IRS sends out 8 billion pages of forms and instructions each year. Laid end to end, they would stretch 28 times around the earth. Nearly 300,000 trees are cut down yearly to produce the paper for all the IRS forms and instructions. Also, since it taxes only new items, it would encourage buying tax-free pre-owned cars, clothes, furniture, houses, etc. |