This was sent out yesterday absent the body of the article. I don’t know if I failed somewhere or Substack failed. But since I cannot reach anyone at Substack to discuss it I send it again. Please share this as widely as possible. Your friends are welcome to subscribe to this Stack for free. We need to inform about the FairTax and refute the attacks. We shall do so here.
Speaker Kevin McCarthy has promised a vote on the FairTax. Immediately some have called instead for the vote to be on the Flat Tax.
This debate has been going on for over 30 years now as to whether the current confusing tax code should be replaced with a flat tax on income or a tax on consumption. Rep. Dick Armey (R-Tex.) wrote a book about the Flat Tax in the early 90s and Steve Forbes ran for president on it in 2000. I too once supported the Flat Tax. But I came to realize that a tax on business could not be a Flat tax on revenue, we could only tax profits and not sales.
We could not tax sales because while the gross margin for software may be over 50 percent, the gross margin for groceries is less than 3 percent. We would still require a huge federal agency to audit how you arrive at taxable profit from gross sales. That would then become subject to “refinement” from future congresses. I concluded early on that the only reform of the tax code that will be lasting is to repeal it. I introduced the FairTax.
The tax we have today—that you have come to know and love—is a flat tax on income…110 years later. It was flattened out again in 1986 only to have been amended tens of thousands of times since then. It can be flattened every year, but we will still need a huge federal agency to audit how you arrive at taxable income from gross sales.
As long as Congress knows how much you make and how you make it, they are going to find a way to get the rest. Under the FairTax no one will know any details about your earnings.
The Mercatus Center at George Mason University estimated 10 years ago the hidden economic costs of complying with the code and record keeping was about $500 billion each year. Today it is close to twice that. An earlier study concluded that it costs a typical small business $724 to collect, comply, and remit $100. That is not just inefficient: That is stupid!
Our tax code has created an underground economy of $3 trillion per year and keeps in excess of about $32 trillion in offshore financial centers.
This money wants to be in our economy, but is offshore because of the tax consequences of repatriation. I once asked Federal Reserve Chairman Alan Greenspan how long it would take for that offshore money to be returned to our markets and banks if we passed the FairTax. He said months. Why do we not want that money in our markets or banks?
Today upwards of 20 percent of what you currently spend at retail represents the embedded cost of the IRS. You are paying the income tax costs and the payroll tax costs and the accountants and the attorneys to avoid the tax costs of each of the thousands of companies it takes to get a loaf of bread to your table. From getting oil out of the ground to make fuel to getting ore out of the ground to make steel.
All of those businesses have labor costs and rend costs and travel costs and tax costs. The only mechanism available for any business to pay any of its expenses is through price and all of those costs end up in the price system. Those additional tax costs in our price system make us less than competitive in a global economy and drive jobs offshore.
These four problems: 1. Offshore money; 2. Costs of Compliance; 3. Underground economy; and 4. Embedded tax costs in the price system - all remain in place when we nibble around the edges of the current code. All go away by abolishing the code and taxing consumption rather than taxing income.
The FairTax is a retail sales tax levied at the checkout counter on the purchase of new goods and services for personal use. There is no tax on used goods, since nothing should be taxed more than once.
There is no tax on business activity. There is no tax on personal income, corporate income, dividends and estates. There is no gift tax or capital gains tax. All gone—along with the IRS.
Currently the top 50 percent of income earners pay 97 percent of all income taxes. Their income tax averages 14.6 percent plus 15.3 percent for the payroll tax. Thus, the government takes 29.9% of everything you earn. Under the FairTax you would give the government 23 percent of every dollar you spend. If you don’t spend it, you are not taxed on it.
By eliminating the IRS, we will share a $5 to $10 trillion, 10-year benefit by getting rid of the compliance costs. Prices will decline because the embedded costs are gone. Take home pay will increase since there would be no deductions from the paycheck. Those two events will create a huge increase in purchasing power
We will become a global powerhouse by selling into a global economy with no tax component in our price system.
So that no one should have to pay taxes on necessities we devised a prebate system, a rebate in advance, which would transfer to every household a distribution sufficient to totally untax them on necessities, based not on income but on the size of the household.
The prebate for a family of four would be sufficient to allow that family to spend $39,400 with no tax consequence. Since the poor spend virtually all of their money on necessities, this will provide nearly complete relief from taxation for them.
Beyond that we are all voluntary spenders and we will all be voluntary taxpayers. We will pay taxes when we choose, as much as we choose, by how we choose to spend.
The FairTax bill anticipates the repeal of the Sixteenth Amendment. The bill says that if we haven’t repealed the Sixteenth Amendment after seven years under the FairTax system, the FairTax is repealed. Congress will have to decide whether they want to vote to return to the system that has proven to be so corrupt or repeal the 16th amendment. We believe that the American people will put enough pressure on Congress to get them to repeal the Sixteenth Amendment.
The United States will turn to the FairTax one day. Not because Congress will be struck by the wisdom of it, but out of the realization that there is no place else to go. Every tax increase in the last 60 years has been sold to the American people as only impacting the top 2 percent. The rest of America said, “Go get ‘em.” Those folks can afford to live elsewhere. And there just isn’t enough revenue in the top 2 percent to meet all of our needs.
The FairTax untaxes necessities, broadens the base and lowers the tax rate. Everybody is treated exactly the same. Under the fair tax when Warren Buffett’s wealth is spent—and it will be spent, if not by him, then by his heirs or by foundations—it will be taxed at exactly the same rate as his secretary’s rate and he will be proud.
I have been in favor of the Fair Tax since 2000 when I heard Neil talk about it on the radio. The only thing that I have a question about in this letter from Mr. Linder is that of the 16th Amendment. I thought that the 16th Amendment was supposed to be repealed before the Fair Tax went into effect so that there would not be double taxation. From what he wrote we would have both the income tax and the Fair Tax for up to 6 years. Maybe I misunderstood. Sincerely, Theresa D. Keyser