"I have sworn upon the altar of God, eternal hostility against every form of tyranny over the mind of man."

Thomas Jefferson
Sept. 23, 1800

Thursday, April 19, 2012

F Is For.....Fair Tax

How about a show of hands of all the people who just love the tax code. Nobody? Ok, how about those who have read and understand the tax code? Still quiet out there, huh? Then why, when the thing is so roundly reviled and no one, not even those who voted for it, can tell me exactly what's in it, is there so much hesitation to throw the damned monstrosity away and start over with something new? The one Republican with an actual plan to totally replace the massive tax code with something more sensible was mocked for his idea. By the REPUBLICANS for God's sake! Herman Cain's 9-9-9 Plan isn't perfect, but it's a whole Hell of a lot better than just monkeying around on the edges of what we have. But 9-9-9 wasn't supposed to be an end in itself, it was meant to be step toward what I believe to the nation's last hope for avoiding total financial meltdown in the not so distant future, the Fair Tax.

Those who haven't yet heard of the Fair Tax can read about it in this book, and I highly recommend they do. I'll explain it briefly, though.  The idea is to replace all taxes on income, including the individual income tax, the corporate income tax, estate tax, gift tax, capital gains tax, Medicare tax and even Social Security tax, with a 23% embedded tax on all goods and services at the retail level. If you paid one dollar for an item, 23 cents would go towards the tax. Only new items would be taxed, not resale. To help protect the needy, a "pre-bate" would be credited to every household each month based on the amount of tax on spending up to the government published poverty level. For example, if the poverty level for a family of three is determined to be $20,000/yr, then 23% percent of that would be credited back to the household each year in 12 monthly installments of just over $440 per month, to cover the tax on the necessities of life. All goods and services would then be taxed, removing the power of politicians to exempt certain things.

The beauty of the Fair Tax is that it wouldn't simply make everything you buy 23% more expensive over night, though that wouldn't be so horrible without any withholding coming out of your check. You see, the trouble with withholding taxes is that cost gets imbedded in everything. When you buy a loaf of bread, the taxes those businesses paid every step of the way are included in the final price. You are paying withholding for the retail clerk, stocker, delivery driver, baker, and farmer, just for starters. Take those taxes away, and the market will drive retail prices lower, or wages higher, or both. It's a win-win because finally everyone in the retail economy is paying taxes. The drug dealers pay taxes on their new rims and the illegal farm workers pay on their groceries. But everybody, you, me, everybody, has total control over how much they pay in taxes by deciding how much they buy over the basics provided for by the pre-bate. Saving your money will be tax-free. Investing your money will be tax-free. With no corporate income tax, the United States will become a tax haven for companies from all over the world wanting to do business here because it's cheaper. The actual Fair Tax Bill sets the rate to achieve revenue neutrality, meaning the government will take in no more or less than it did under the old system assuming constant retail activity. Even the government isn't a loser under this plan.

So why haven't the politicians jumped at this? Why do they make up phony arguments and paint any Fair Tax supporting challengers as crazy or evil? Well, before the Fair Tax gets implemented, it calls for a constitutional amendment repealing the federal government's authority to tax income granted in the 16th Amendment. That scares incumbent politicians and those that hope to hold lots of power someday. The manipulation of the tax code is the main source of power in congress. It's how they reward supporters and punish the supporters of opponents. It's how they "encourage" behavior they like and "discourage" behavior they don't like. It's why the tax code is so ridiculously huge, it has tiny rules written into it for every tiny reason any congress-weasel could think of. Under the Fair Tax, this comes to a screeching halt. You will know what you pay every day. You will know what you will pay tomorrow. A happy meal will be taxed at the same rate as a head of cabbage. A Prius will be taxed at the same rate as a Mustang. If you watch your pennies, you can get away with less taxation. If you spend like a drunken sailor, you will pay a bunch. But it's up to YOU, not your congress how much you pay. That's freedom many in congress will not let you have unless forced to.

There is a good bit of grassroots support for the fair tax today. It's been a pleasant surprise to me to see it backed by friends of all political parties and beliefs. It just makes good sense. But it needs YOUR support to succeed. This can be done, but it won't be easy. The mass media will never give the Fair Tax a fair shake, it's too easy to misunderstand and the liberal wing of the media doesn't want power devolved from Washington any more than the political establishment does. If the Fair Tax is to become a reality, it will take citizens educating citizens about it, then forcing their elected representatives to take action. It won't be easy, but it can be done. And I hope soon.

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