Representative John Linder (R-GA) has sponsored the “Fair Tax Act,” H.R. 25, since 2007. Currently it has 55 cosponsors.
The bill would repeal Subtitle A of the Internal Revenue Code of 1986 (relating to income taxes and self-employment taxes); Subtitle C of the Internal Revenue Code of 1986 (relating to payroll taxes and withholding of income taxes) and fund the Social Security Trust Fund from the general revenue; and Subtitle B of the Internal Revenue Code of 1986 (relating to estate and gift taxes). In would enact a National Sales tax in place of those lost revenues. Further, the States would be paid to adminster the new system due to their expertise in collecting sales taxes.
Mr. Linder writes on his web site
“I am the primary sponsor of the FairTax, legislation that will repeal all corporate and individual income taxes, payroll taxes, self-employment taxes, capital gains taxes, estate taxes and gift taxes – and replace it with a revenue-neutral personal consumption tax.”
The Fair Tax Act would, also, eliminate the controversial Sixteenth Amendment.
This act does not affect the excise taxes paid on phones, guns, tires and the like. The Fair Tax web site explains
“Some people ask why the FairTax doesn’t go ahead and replace/eliminate that last 8% of taxes, as well. It’s a good question with an easy answer: politics. That last 8% includes not only most telephone taxes but also tobacco taxes, alcohol taxes, gun taxes, user fees, and trade tariffs. Each of these categories is a complicated legislative battle all by itself.”
Excise taxes are placed on products manufactured in the United States and added to the final price. That drives the sales tax you will pay a little higher. For many years, these taxes were the only taxes used to fund the country. With this bill, though, there is no motivation for the Federal Government to put a cap on excise taxes. You would not be privy to how much of the price of your new gun, your new tires or new car is going to the government in excise tax. Your phone and gas bills, sometimes, has that amount specified, however.
The income tax, as we know it today, came from The Manifesto of the Communist Party which calls for a “heavy and graduated income tax.” It was instituted after a glowing oratory by William Jennings Bryan who decried, “a minimum of tax and a maximum of deductions.” The battle cry of It won’t be that bad has been used by Democrats ever since. It was used by Roosevelt to institute the, now failed, Social Security system and Kennedy to institute the other ailing social system, Medicare. Barack uses the same hackneyed phraseology in support of his health care bill which is fighting for co-sponsors in the Congress.
The new act would tax, for the first time, services provided in the U.S., such as medical expenses and lawyers fees. The fair tax act reports that five states have already moved in this direction because our economy has become more service oriented. [That certainly is a devastating commentary on the state of our industrial might.] The National Governor’s Association has called, for some time, to revise sales taxes because goods-based sales taxes are not generating enough revenues.
The one very bad part of the bill is that no state is required to eliminate any tax, such as state income taxes and sales taxes, nor to add any of those revenues to the Federal Sales tax. That is consistent with the Tenth Amendment, but still presents a problem. You would still be required to pay constantly rising property taxes and sales taxes to build sports stadiums instead of investing in schools. If a state decided to model its tax system after this bill and go for a straight sales tax, would it generate enough revenues to run the state?
Section 2, of the bill, lists the CONGRESSIONAL FINDINGS, as all bills do. From the bill, those findings are:
(a) Findings Relating to Federal Income Tax- Congress finds the Federal income tax–
(1) retards economic growth and has reduced the standard of living of the American public;
(2) impedes the international competitiveness of United States industry;
(3) reduces savings and investment in the United States by taxing income multiple times;
(4) slows the capital formation necessary for real wages to steadily increase;
(5) lowers productivity;
(6) imposes unacceptable and unnecessary administrative and compliance costs on individual and business taxpayers;
(7) is unfair and inequitable;
(8) unnecessarily intrudes upon the privacy and civil rights of United States citizens;
(9) hides the true cost of government by embedding taxes in the costs of everything Americans buy;
(10) is not being complied with at satisfactory levels and therefore raises the tax burden on law abiding citizens; and
(11) impedes upward social mobility.
(b) Findings Relating to Federal Payroll Taxes- Congress finds further that the Social Security and Medicare payroll taxes and self-employment taxes–
(1) raise the cost of employment;
(2) destroy jobs and cause unemployment; and
(3) have a disproportionately adverse impact on lower income Americans.
(c) Findings Relating to Federal Estate and Gift Taxes- Congress finds further that the Federal estate and gift taxes–
(1) force family businesses and farms to be sold by the family to pay such taxes;
(2) discourage capital formation and entrepreneurship;
(3) foster the continued dominance of large enterprises over small family-owned companies and farms; and
(4) impose unacceptably high tax planning costs on small businesses and farms.
(d) Findings Relating to National Sales Tax- Congress finds further that a broad-based national sales tax on goods and services purchased for final consumption–
(1) is similar in many respects to the sales and use taxes in place in 45 of the 50 States;
(2) will promote savings and investment;
(3) will promote fairness;
(4) will promote economic growth;
(5) will raise the standard of living;
(6) will increase investment;
(7) will enhance productivity and international competitiveness;
(8) will reduce administrative burdens on the American taxpayer;
(9) will improve upward social mobility; and
(10) will respect the privacy interests and civil rights of taxpayers.
(e) Findings Relating to Administration of National Sales Tax— Congress further finds that—
(1) most of the practical experience administering sales taxes is found at the State governmental level;
(2) it is desirable to harmonize Federal and State collection and enforcement efforts to the maximum extent possible;
(3) it is sound tax administration policy to foster administration and collection of the Federal sales tax at the State level in return for a reasonable administration fee to the States; and
(4) businesses that must collect and remit taxes should receive reasonable compensation for the cost of doing so.
(f) Findings Relating to Repeal of Present Federal Tax System— Congress further finds that the 16th amendment to the United States Constitution should be repealed.
The National Taxpayers Union supports the bill, while others do not. The You Debate web site has an ongoing debate on the matter. One of the cons is,
“A national sales tax is essentially a tax on consumption. Since low income families spend almost every penny they earn on subsistence items, they would pay A HIGHER PERCENT OF THEIR EARNINGS IN TAXES. HIGHER INCOME families could afford to PUT A portion of their earnings into savings investments.”
The problem with that argument is that they are now paying much of their income in taxes. Some have to work two jobs, or both parents have to work two jobs, in order to pay for income tax, payroll taxes—medicare, social security and unemployment taxes—property taxes—if they are still lucky enough to own their house—taxes on the phone service, any number of other hidden taxes and, yes, sales tax when they purchase their food. If this bill rolls all taxes into one sales tax, and that is the only tax you pay, both parents probably won’t have to work two jobs and they will have money to put away.
The con argument concerning the IRS is that it would be disestablished and people would loose jobs, while the pro side contends that the IRS would still be necessary to collect the sales tax from the businesses. In this bill, however, the IRS would be disestablished in favor of State agencies taking on that role. It would eliminate one more government swat team from existence.
A letter to the editor of the Arizona Republic from David Ohlund of Mesa says:
There seems to be confusion as to what to do about our existing federal tax code as outlined by the recent Robert Robb column, “Rangel’s tax bill: Mother of All Muddled Thinking,” (Opinions, Wednesday). The existing tax code is broken beyond repair. That’s why all attempts to fix the system only lead to more problems and mistrust of our legislators.
The solution is simple and fair for all taxpayers. With a national sales tax known as the “fair tax,” (www.Fairtax.org), there would be no indexing, tax sheltering or reconfiguration of what people pay in federal income taxes. There would no longer be any taxes on our productivity, which now stifles savings, investing and job creation.
All people who consume would pay the fair tax when they buy new goods and services.
The fair tax would allow wage earners to keep all of their income. No payroll withholding. No filing of income tax returns, tax evasion, or manipulation of the tax system allowed.
Individuals would once again determine when and by how much they would be taxed for the administration of government. All existing government programs and mandates would be fully funded as they now are, with future funding guaranteed, unlike our current tax-revenue funding system.
In order for this to work, however, we will have to get passed H.R. 2755 Federal Reserve Board Abolition Act introduced by representative Dr. Ron Paul in the 110th Congress. This act would abolish the Federal Reserve which is a non-governmental agency. At the very least we will have to get H.R. 12071 Federal Reserve Transparency Act of 2009 S. 604 Federal Reserve Sunshine Act of 2009 through Congress. These acts will make the government audit the Federal Reserve. The Federal Reserve, currently, can only be audited if they say so and only have to provide “unsensitive” documents.
This bill is a good start at reforming an oppresive tax system. It would not eliminate all of the hidden taxes that you now pay, however. We believe, however, that if this tax bill passes and Arizona enacts similar legislation, the government can be streamlined enough to make this work and it would represent a fairer tax system in the long run. You might have to pay ten dollars for a driver’s license, for example, every five-years rather than four-dollars. There might be a need for a small boost in AHCCCS (Access) premiums. However, if all you are paying in taxes is up to a 20% sales tax, you would be able to afford those payments.
The other argument, for the poor, is that they would not be able to afford to pay sales tax. That argument does not take into account that a single American male pays income tax at all levels even if he is a single parent while a married couple making the same amount gets many deductions. This system would make sure the same amount of tax revenue is generated by anyone who buys goods or services. In addition, drivers licenses are barcoded with a variety of information. It should be a simple matter add a piece of data that, when swiped at the supermarket, deducts the tax from purchase for people making less than a certain amount. DES food stamp cards do that now.
1To find information on H.R. 1207, you will have to go to http://thomas.gov and use the search box for the 110th Congress or “google” it.
Sources:
Thomas.gov
H.R. 25 (PDF)
Fair Tax Act web site
Principles of Tax Reform (PDF File)
Support H.R. 25
National Taxpayers Union
Americans for Fair Taxation
Arizonans for Fair Tax Act
Do not support H.R. 25
Democrats
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