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Monday, June 4, 2012

#4 Authorize States to Collect the Tax


FairTax boasts of being simple, fair, efficient and transparent. When tax laws become so complicated to the point of being incomprehensible, citizens have less trust in government and a greater feeling of helplessness. They're also more likely to cheat on their taxes or not file taxes at all. Tax non-compliance (Tax Gap) is estimated to be over $400 billion annually. Those of us who pay our taxes paid $3,110 more (in 2006) to cover those who chose not to pay their taxes. That's definitely not fair. On top of that, add the underground economy at $1.2 trillion who operate illegitimately as well as legitimately on a cash-only basis thereby escaping paying income and payroll taxes. Recently, fraud amounting to $4.2 billion was discovered in the Immigrant Tax Identification Number (ITIN)  program. The ITIN is issued by Social Security to illegal immigrants working in our country with the intent to collect income tax from them. WHAT??? Can't they see the irony in this? What part of "illegal" don't they understand? They should be assisting ICE in issuing Deportation orders. Instead, ITIN is being abused by participants claiming children, nieces and nephews living in foreign countries as dependents. That is blatant theft! Wrongfully tolerated by our government. ITIN and many other fraudulant wasteful programs intertwined with our tax code would be immediately eliminated by the passage of the FairTax Bill. 
The opposite is also true, when tax laws are few and simple to understand, logical in design, transparent to all, and applied equally to everyone, citizens rarely try to scam the system. Oh, there will always be some idiot who will try, but it is difficult to cheat when everyone knows the rules. State Sales Tax is a perfect example of voluntary taxation with limited violations. Remember, under a consumption tax system, the tax is included in the retail price. The only way it can be removed is with the Retailer's consent. Therefore, it is the Retailer who risks the penalties for tax evasion; a loss of profit, a fine, and a possible prison sentence. In addition, under a consumption tax system, revenue is directly connected to the success of the economy. The more retail sales in America, the more tax revenue collected for the federal government. This makes removing road blocks to success a paramount objective of the United States Congress, as it should be.

FairTax restores the original intent of our Constitution; Federal Government funded by prosperity.  FairTax Dave


T. Coleman Andrews, Commissioner of Internal Revenue (1953 - 1955) said this;
"The income tax is bad because it has robbed you and me of the guarantee of privacy and the respect for our property that were given to us in Article IV of the Bill of Rights. This invasion is absolute and complete as far as the amount of tax that can be assessed is concerned. Please remember under the 16th Amendment Congress can take 100% of our income any time it wants to. ...I believe that a better way to raise revenue not only can be found but must be found because I am convinced the present system is leading us right back to the very tyranny from which those, who established this land of freedom, risked their lives, their fortunes and their sacred honor to forever free themselves..."

Bill HR-25, Title II, Section 201, Subtitle A, Chapter 4 dictates the national sales tax will be collected at the State level. This allows the States to use existing sales tax administrations to collect national tax from the same familiar business sources. It also eliminates the need for tax collectors at the federal level, in other words; no IRS required. Although to make it work will require a revenue collection relationship between the federal government and each of the 50 States. U.S. Treasury Agents working cooperatively with State Tax Administrators to ensure accuracy and honesty in the collection of the national sales tax.

FairTax provides three options to each State regarding tax collection;
1- Collect the national sales tax using the State Sales Tax Administration.
2 - Commission a neighboring State to do the tax collecting, or
3 - Concede the tax collection duties to the federal government. 
It is safe to assume most of the States, if not all, will choose the first option to take advantage of the tremendous transfer of power and the considerable financial rewards as a result of collecting the FairTax.

Title II, Section 201, Subtitle A, Chapter 2 provides business credits and refunds for business related items that were purchased with tax included, as well as bad debt credits, intermediate and export sales credits, insurance proceeds credits, etc. It is strongly advised to those who own their own business to read Chapter 2 for a clear understanding of the business credits.

"A wise and correct course to follow in taxation and other economic legislation is not to destroy those who have already secured success but to create conditions under which everyone will have a better chance to be successful."   President Calvin Coolidge

Here is a summary of the logistics required to collect the FairTax. The pricing formula for producers and suppliers (non-Retailers) is Price = Cost + Profit (no embedded taxes). Business credits eliminate embedded taxes and are provided in two ways;

FairTax simplifies business in America
1 - Tax-exempt Identification Numbers will be issued by the State to all qualified businesses for the purpose of purchasing materials, components, sub-assemblies, intellectual property, etc. necessary to produce a product and/or service. This tax-exempt system already exists in most of the States.
2 - Any business can request a refund from the State. The rule is simple, if the use of the item or service purchased is 95% or greater for business purposes, then 100% of the 23% sales tax will be refunded. Lesser percentages refunded for lesser business use. Example: A Machine Shop owner's new CNC Lathe is 100% tax exempt, tax on his Salesman's company car depends on percent of business use, but the owner's new Desk is not exempt.
Note: Employee discounts are taxable. However, regardless of the discount, the tax will be no less than 80% of the tax at the normal price. You may get a bigger discount on the price but you only get a 20% maximum discount on the tax. Go to to review the several studies and White Papers on this topic. 

Remember, businesses do not pay taxes, therefore, their prices do not include any tax. This results in a 22% average reduction in the cost to the Retailer depending on the products and/or services purchased. The Retailer's price to the consumer will include the 23% national sales tax. Therefore, the net effect is... prices remain about the same. However, a FairTax economy is subject to the same inflation, shortages and market demands as any economy. Therefore, there are no guarantees that prices will stay exactly the same.  Open competition and the free market law of supply and demand are the ultimate controllers of prices.

Retailers will be the Tax Collectors in America
The Retailer is contracted by law to collect the national sale tax. He has a different pricing formula than Producers and Suppliers; Price = Cost + Profit + Tax. To include 23% sales tax in the sell price, the Retailer adds 30% to his Cost + Profit. So what is the true tax rate, 23% or 30%? The answer is BOTH, it all depends on which side of the Cash Register you're standing. If you're the Retailer its a 30% mark-up, if you're the customer its a 23% sales tax. Opponents try to make a big deal about this, insinuating deception by the promoters of FairTax.
Example, if Cost + Profit = $100:
                    $100 + $30 tax = $130 sell price
                    $30 tax / $130 sell price = 23% sales tax

All consumers purchasing new items and services pay the Retailer's price and receive a receipt which identifies the price and the included tax. A constant reminder of what our government is costing YOU. Retailers are paid for collecting the tax; those with small monthly retail sales (under $4,350) keep 20% of the tax collected up to $200, large retailers (over $350,000) keep 1/4 of 1% or $200 whichever is more, all other businesses between these extremes will receive a flat $200 tax collection fee. 

The Retailer will submit a monthly one-page tax form that begins with recording the Total Retail Sales. Then multiply Total Retail Sales by 23% (this is the tax collected), subtract Tax Collector's Fee and Business Tax Credits, send the balance of collected tax to the State before the 15th. (Some very large retailers may be required to submit the tax weekly).

FairTax eliminates approximately 90% of the reporting imposed by government on businesses. However, all businesses will still be required to report to Social Security the hours and earnings of each employee for the purpose of determining their retirement benefits.

A Sales Tax collection system exists in 45 States. This is nothing new and requires little adjustment to incorporate the national sales tax with the State sales tax collection duties. No special training or costly new government department required. In fact, FairTax results in greater efficiency, higher accuracy and more tax revenue than the current system. For this service, each State will retain 1/4 of 1% of the taxes collected. This is big bucks. In half of the States it represents more money than it costs to administer the existing State Sales Tax program. All States will benefit financially, but more importantly, FairTax by its design creates a front-end direct financial relationship between the States and the federal government, i.e., an open dialog on revenue generation.

"Government does not create wealth. The major role for the government is to create an environment where people take risks to expand the job rate in the United States."   President George W. Bush

HR-25 specifies the States must meet with the U.S. Treasury at least once a year to review operations, propose improvements and share experiences. This is a relationship that currently does not exist. The annual 165 million household and business tax filings that exist now will be replaced by 50 States reporting and forwarding tax collections every month. This puts the States between YOU and the federal government which was the original intent expressed in the Constitution.

The 144,000+ employees of the IRS will no longer be needed.  As stated in HR-25, the appropriations (funding) for the IRS will end three years after the enactment of the FairTax. During those last three years the IRS will be responsible for concluding as many open investigations as possible (the remainder forwarded to the U.S. Treasury) and destroying all closed files on American taxpayers.
FairTax is the only Bill in Congress that actually reduces the size of government by terminating the Internal Revenue Service, currently a $12 billion expense. Title III, Section 301 explains the phase-out of the IRS, and Section 302 establishes an Excise Tax Bureau and a Sales Tax Bureau within the U.S. Treasury. Other regulatory departments in Washington may also see a reduction in staff. The total influence of FairTax may not be known until after it is enacted, but rest assured the affects will be positive because FairTax is built on solid Constitutional principles.  

There you have it, the four actions of FairTax that will effect your life daily; REPEAL, ESTABLISH, PROVIDE and AUTHORIZE. My goal was to dissolve the mystery, articulate the truth and expose the lies. I hope you gained a better appreciation of the benefits of FairTax to you and your country, and why the passage of FairTax Bill HR-25 is so crucial to reclaiming the liberties and freedoms chronicled in our Constitution.

Still not convinced? Does FairTax still look too good to be true? Do this; every time you see some news report on TV involving tax related crimes, injustices or atrocities ask yourself, "If FairTax were the law, would that have happened?"

The next entry will focus on who opposes the FairTax and why.


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