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Saturday, April 28, 2012

Tax Options and Traps


I never paid too much attention to politics until 3 years ago.  Seemed to be the topic better left unsaid at gatherings and casual conversations, definitely taboo in business meetings.  I think that's why I feel comfortable talking about FairTax to friends and strangers because it's totally non-partisan.  In fact, I learned quickly not to engage in serious political chat so as to preserve the FairTax non-partisan reputation.  Even so, it is difficult to exclude yourself from contributing or challenging comments about candidates you have met.  Even harder is sitting quiet when a candidate misrepresents the facts about FairTax.  (must admit I did get toe-to-toe with a politician or two, but that's acceptable and necessary when they distort the truth).
During the 2010 campaign for an incumbent Congressman's seat I was introduced to a challenger who I will call "Windbag Willie".  This guy was very successful in the business world.  Windbag Willie was a self-made millionaire who had all the answers.  The conversation went like this... Me - "Are you familiar with the FairTax?"      WW - "No"      Me - "The FairTax is a consumption tax that would replace all taxes on income, and it would abolish the IR...."      WW - "What's the rate?"      Me - "23%"      WW - "Too high.  Must be 10% or less" ...then Windbag Willie turned and walked away.  That was the total sum of the conversation.  Sure glad Windbag Willie didn't win the primary. 

I think there's a lesson here, for me it was to never under estimate a politician's propensity to be guided by his own arrogance.   FairTax Dave

The Power to Manipulate

Changes in federal taxes coming from one or more of the first three categories shown in the developing slides below are a continuation of the games played in Washington.  Each can be used to inflict more or less taxes on different groups of the American public depending on several variables; politicians securing votes, cashing in or trading favors, pay backs, Lobbyists influence, campaign debt, party pressure, blackmail, the list goes on and on... 

But only FairTax can produce a transparent, simplified, fair and permanent tax system that removes "politics as usual" and "Class Warfare" from the tax equation.  Let's compare all the options in general before detailing the FairTax.

#1- REINFORCE  creates new taxes or expands existing taxes allowing politicians to use their Class Warfare tools, flex political muscle and call-in favors.  The formula is simple;
a) demonize the other party as being anti-poor, anti-women, anti-students, anti-seniors, anti-environment, anti-progress, anti-profit, anti-big oil, anti-(fill in the blank), or...
b) identify a flaw in our society, explode it into a crisis and create an agency to fix it and a new tax to pay for it.  The only problem is it rarely is a real crisis, it never is the government's responsibility to fix it, and the American tax payer can't afford it.  (Most so-called 'crisis' would be solved if the government would just get out of the way and let the marketplace sort it out).  If the politicians get their way, the only result will be more government agencies, more government employees, and higher taxes.  "Cap & Trade" is a prime example; using junk science, fear propaganda and the media to promote the expansion of the federal government, politicians hope to create a new  complicated and costly tax on America.

Of those shown in #1, the most dangerous is the Value Added Tax (VAT) because it would comply with Article I, Section 8, clause 1 of the Constitution as an "excise tax".  The VAT is often called a consumption tax or a national sales tax which neither is true (they do this to defuse the FairTax message).  The VAT will tax at every point where value is added in the process of producing a product or service.  It is a vicious, cancerous hidden tax.  An increase in the VAT rate, when the public is not looking, can easily be disguised as inflation.  You only need to look at European countries to see the trap laid by the VAT.  For example, Denmark introduced a 9% VAT in 1962.  30 years later it had grown to 25% where it remains to this day.  (Today European countries have VAT rates from 15% to 25%)  Taxing productivity and consumption at the same time is a smothering tax combination on any country's economy.  European Socialism has VAT at its foundation.  Like a Python's embrace slowly squeezing the life out of it's prey, a VAT once in place will never retreat and never be removed.

"But a Constitution of Government once changed from Freedom, can never be restored.  Liberty, once lost, is lost forever".    John Adams

#2- REPAIR is the favorite game of the seasoned Washington incumbents.  All Freshman Lawmakers arrive in our nation's Capitol with the ultimate solution to our tax problems, but nobody can get a majority of their colleagues to agree to it.  For 99 years Congress has been searching for the perfect tax combination that will do it all...with zero success.  So they settle for winning small battles and minor tax revisions.  From Reagan's tax simplification Bill in 1986 to the end of 2010 our tax code was revised over 16,000 times, an average of two and a half revisions for each day congress was in session.  Is that all they do in Washington?  Don't get me wrong, any tax relief would be welcome, however there's no permanency, no guarantees, no promises that can be kept in these efforts.  Everything can change after the next election... and the next... and the next.  Politicians will never keep their hands off the income tax code because it has the power to reward and punish friend and foe.  It is the power that all seek.

                            "Its easy for politicians to spend more... 
                               when they have the power to tax more".   

#3- REFORM suggests we throw out the tax code and replace it with something new.  This is deceptive because every tax scheme offered in this category requires the 16th Amendment to remain legal.  The most popular is the flat tax which looks good on the surface but will never meet the expectations it promotes, and it must have the 16th Amendment to be compliant with the Constitution.  Remember, the first Income Tax of 1913 was a single rate and a single deduction based on marital status, i.e. a flat tax This is not reform, its restart.  Why would anyone think it would render better results the second time around?  Earlier a comparison of the FairTax to a flat tax was posted.  You may want to scroll down and read it again.

"Our present tax system exerts too heavy a drag on growth.  It reduces the financial incentives for personal effort, investment, and risk-taking.  The present tax load distorts economic judgment and channels an undue amount of energy into efforts to avoid tax liabilities."    John F. Kennedy 

#4- RESTORE proposes a return to the principles expressed in the original writing of the Constitution by repealing all taxes made legal by the 16th Amendment.  That is exactly what FairTax does, eliminates all taxes on income and replaces them with a single rate national consumption tax at the retail level, thus changing the way we collect the same amount of tax revenue.  President Kennedy's quote speaks of the confusions and temptations in the existing tax code.  These would be eliminated by FairTax.  The $1.2 trillion Underground Economy that pays no income tax today will pay the national sales tax on all legal purchases of new items or services.  Illegal purchases will be subject to tax evasion laws. 
Regarding the 16th Amendment, it would still be on the books but with no power, left inactive, alive but stripped, harmless, toothless.  It's repeal will be completed within seven years following the enactment of the FairTax(What happens if its not repealed?  No worries, more on this detail later).

   "FairTax stops penalizing success in America".     Adrian Messer - my mentor

In summary, the first three tax categories fail to bring substantial tax change.  They are either adding more taxes or rearranging the deck chairs on the Titanic.  We don't need new taxes or more band-aids or half-a-loaf efforts that won't attack the real problems... the 16th Amendment... Class Warfare... and Washington's addiction to power.
Bottom line, none of them change Washington for the better or establish a permanent solution to our tax nightmare... except FairTaxYou want a smaller, more honest, more productive federal government focused on solving problems instead of personal gain, constant gridlock, divisive rhetoric and party posturing?  Then take away their power to manipulate the tax code. 

FairTax has many benefits, none more attractive than terminating the Internal Revenue Service. "NO IRS" can become reality only by passing the FairTax Bill HR-25.  "NO IRS" means no filing forms, no invasion of privacy, no government intimidation, and no threats of penalty or imprisonment for not complying with the bloated incoherent tax code.

   "We can't get our country back... until we get control of the money."

So, what can Washington lawmakers do to raise (or lower) taxes after the FairTax is enacted into law? 
#1- They can create or modify "excise taxes" in compliance with  Article I, Section 8, clause 1. 
#2- They can increase the national sales tax rate, but in doing so they raise taxes on every American citizen regardless of income.  This would be a major and transparent political risk. 
#3- They could lower the Prebate rate to be less than the FairTax rate to create a gap of pure revenue (a prebate is a monthly tax return to every American family, more later).  There is no mention of this in Bill HR-25, however, this may have voter support if the revenue was dedicated to a specific popular task such as reducing the debt or a major national crisis, but would require strict oversight and an iron-clad binding short time limit. 
#4- They can get government out of the way and provide incentives for economic success at the personal and business levels.  Simply put, under FairTax "prosperity increases tax revenue".  This was the vision of our founding fathers.  Tax products and services, do not tax the people, and function within the revenue produced.  Maybe Congress would think twice before sacrificing industrial progress to questionable ecological concerns... and focus on making America energy self-sufficient. 

"The natural cure for an ill-administration, in a popular or representative constitution, is a change in men".    Alexander Hamilton

The next blog will be a history lesson on how FairTax became a Bill in Congress and the hurtles it faces.  A great book to read is "The FairTax Book" that was co-written by John Linder and Neil Boortz, released in 2005.  It was at the top of the best seller list for over 30 weeks.  Excellent source of the origins and logic of FairTax.  You can download it from Google for less than $3.00 or maybe get the paperback free from Amazon if you pay the shipping charge. 



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