Subject: FairTax support Comment: Dear Chairman Mack and Tax Reform Panel members, Description of Proposal The tax base (income, consumption, hybrid) The FairTax (HR 25 / S 25) is a fair, simple, progressive consumption tax implemented as a National Retail Sales Tax on all new goods and services purchased by the end consumer. The FairTax includes a prebate system to untax consumption up to the poverty level. Exemptions, deductions, credits and exclusions There should be no exclusions, deductions or credits from the FairTax for anything purchased as new by an end consumer. Used goods have already been taxed and are not taxed again. The FairTax considers education tuition as an investment in human capital rather than consumption so it is not taxed. This applies at all education levels (primary, secondary, and college) as well as job related training fees. A credit based on family size only is provided (in the form of a monthly rebate) for taxes on spending up to the poverty level (as defined by the Dept. of Health and Human Services). Poor people and all other Americans receive a pre-payment recompense for the sales tax they would pay for basic necessities. Tax rate(s) The sales tax rate should be exactly enough to replace the funds currently collected and pay for the rebate on poverty level consumption. Previous economic studies estimate the FairTax rate would be comparable to a 23-percent income tax rate. Distribution of the tax burden (including provisions for relief for low-income individuals) The tax burden should be spread among all consumers in the United States; including citizens, legal residents, visitors, tourists and undocumented aliens. All consumers have a duty to share in supporting our government. Lower-income consumers should be free of a tax burden. The simplest means of accomplishing this is with a prebate to all legal consumers for the tax on consumption up to the poverty level. While this introduces the need to deliver the prebate efficiently, it maintains the simplicity of the tax collection process and keeps the tax rate lower with a broad tax base. After factoring in the prebate, the net tax rate depends on family consumption relative to the poverty level consumption. Family Consumption of new goods and services relative to Poverty Level Net tax as percent of income spent on taxable consumption. 0.0 -23.0% 0.5 -11.5% 1.0 0.0% 2.0 11.5% 5.0 18.4% 10.0 20.7% 20.0 21.8% 50.0 22.5% 100.0 22.8% Treatment of charitable giving Charity or giving is not consumption and would not be taxed. As a result, all contributors not just those who are rich enough to itemize will give with pre-tax dollars. There will be no need to make special provision for charity. Americans are charitable by nature. The more money we have the more we give. This fact has been borne out by scholarly studies many times over. Treatment of home ownership Home ownership will be much more affordable under the FairTax. Used homes will sell with no tax consequence as their value includes taxes already paid. New home prices will be reduced when the 20 25 percent embedded tax cost is eliminated. With their entire earnings to take home, plus the prebate, many more Americans will be able to afford a home. Collection method(s) A National Retail Sales Tax will fit into point-of-sale tax systems already in place in almost every business in almost every state. With slight modification, they will serve to collect the NRST. Any cost to modify those systems pales to insignificance when compared to the billions spent annually to comply with the current income tax system. The cost to upgrade them would be a one-time expense by business and tax-free as well. States and businesses would each be compensated for their efforts to collect, report and submit federal funds < of one percent of total collections. Treatment of businesses Under the FairTax, businesses would pay nothing in taxes. Any business-to-business transaction would be free of any tax consequence. Businesses would be free to do business, create product, make money and create jobs. They would be unleashed to serve as dynamos for the American economy and job creation. With the FairTax, businesses would be relieved of their current onerous reporting responsibility. This would free the hundreds of billions of dollars they now spend on tax record keeping and reporting to be spent growing their business and creating more jobs. The FairTax does give business the responsibility to collect sales tax from retail customers and send that tax money to the government on a monthly basis. That would be the beginning and end of their responsibility. They would otherwise be left alone to create product, make sales, grow their business and create more jobs for Americans. The FairTax is industry neutral. No industry would get any break. Under the FairTax, no business or industry would need it. No business would pay any taxes. American businesses would be free to invest in their businesses, increase the GDP and create more jobs. Impact of Proposal Relative to Current System Simplicity (including transparency and stability) The FairTax would be the most simple of tax solutions. Everybody would pay exactly the same percentage sales tax on the purchase of new goods and services. The FairTax would be completely transparent to all that use it. All would see the percentage tax they paid as sales tax on every receipt, every time. No sneakiness there. No way to hide any sneakiness either. The FairTax would make the tax code understandable. Taxpayers would be able to understand how much they are paying in taxes every time they get a receipt for their purchase. The sales tax amount listed on the receipt would replace the 60,000 pages of inscrutable IRS code we now endure. Fairness The FairTax would enable everyone living in the United States to participate in funding the federal government. Everyone would pay nothing in taxes for consumption of new goods and services up to the poverty level. The FairTax would also collect taxes on consumption by undocumented aliens, tax dodgers, drug dealers, and other criminals. The FairTax also eliminates hidden taxes embedded in retail prices. Currently, these secret taxes are a regressive tax on the poor and make U.S. exports more expensive, and less competitive, in the world market. Economic growth and competitiveness No sales tax is collected on exported good and services as they are not consumed in the United States. Also, current hidden taxes embedded in the cost of exported goods and services are removed, eliminating the bias that the current system provides in favor of foreign producers. This would put US producers (esp. agriculture and manufacturers) on a level playing field with the rest of the world. The replacement of the income tax system with the FairTax would attract the return of trillions of dollars to our economy that are currently kept offshore. Tax consequences now keep that money offshore. The FairTax would mean a huge influx of money into the American economy. Trillions of dollars that belong to Americans are currently invested offshore because of taxes. The FairTax would eliminate any reason for those dollars to stay offshore. The American economy would boom with new jobs for Americans when those dollars come home. Compliance and administration costs The FairTax would reduce compliance costs by 95%, according to the Tax Foundation. That money would be freed up to be spent by businesses, as they see fit, to make their business more successful. The FairTax would eliminate untold hours of work and effort by elected officials, and their staffs, to deal with tax code considerations. Their time would be freed up to consider other things of greater importance to the voters that elected them. Transition, Tradeoffs and Special Issues Transition The FairTax includes a transition credit on sales of existing inventory which includes the costs of the income tax system. The transition to FairTax will be greatly simplified by systems already in place that collect state and local sales taxes. Those systems can be easily modified to include a national sales tax. Economic advisors have suggested that giving the capital markets 6-months notice before the FairTax takes effect, and then switching overnight, is the best transition plan. Tradeoffs The FairTax would require no "tradeoffs". The FairTax is very specific in that no special consideration would be given to any people, any industry or any business. Special Issues The FairTax will require that checks be sent to qualified households on a monthly basis. The check would represent the tax "pre-bate" to cover tax on purchases up to the poverty level. This would be done by the Social Security Administration which has a good track record of accuracy in benefit payments. The FairTax eliminates all payroll withholding, including Social Security and Medicare. These programs are funded at current levels with revenue collected by the FairTax. This can facilitate a transition to new Social Security options by funding existing obligations with the FairTax and allowing individuals to contribute additional personal funds to other options. By removing taxation on investment, all taxpayers are given an incentive to save. With their entire paycheck to take home and the prebate covering initial consumption, taxpayers are also more able to save. Personnel currently employed in fields related to the Income Tax will certainly need to adjust their careers. The need to make career adjustments is common to all fields of employment. With less government intrusion, businesses can employ some of these resources to optimize operations of their businesses without needing to guess what tax changes will be coming out of Congress next year. With more opportunity to save and invest, there will be additional jobs available in related fields. Businesses will also look for service organizations to assist in managing sales tax collection and reporting. The FairTax concept was specifically developed in a non-partisan manner by individual activists and not by politicians. It has been market tested to ensure taxpayers can understand, trust, and endorse it. It has been researched and perfected for over ten years. The effects on different sectors of our economy have been analyzed and documented (See www.FairTax.org). The FairTax has significant Congressional support and stands ready to implement. Most importantly, the FairTax is the only proposal that removes the secret taxes hidden in retail prices today. Todays poor and fixed income taxpayers, who think they dont pay taxes, are secretly charged some 20+% in hidden taxes on their consumption. The price of a loaf of bread contains the business tax, compliance, and employee costs of the farmer, the miller, the baker, the trucker, the store, their accountants, equipment manufacturers, etc. just as certainly as the costs of flour and energy required to actually produce & deliver the bread. This secret, regressive tax has been used to keep the poor on the plantation for too long. Its time expose and eliminate this fraud, untax our exports, and bring jobs back to the United States. Its time for the FairTax. |