August 16, 2006
Fair Tax Blogburst: The Progressive Sales Tax
Reprinted with permission from Running in Circles
by Connor CarneyThe Progressive Democrats' Sales Tax
I consider myself to be fairly liberal on most issues. So some of you might be surprised that I am about to take a position that’s usually the providence of hardcore conservatives. I support HR25—the Fair Tax Act of 2005.
Yeah. The one that would replace virtually the entire tax system with a 23% sales tax.
I read about it most recently in an unnecessarily hostile editorial by Matthew Holmes. Truth be told, his article did nothing to convince me that the tax is a good thing. But it convinced me to wade through the full text of the legislation, and I’ve decided that not only is the Fair Tax Act justifiable, it is the ideal legislation for progressive Democrats. I’ll explain why.
Defining “Progressive”
I used the word “progressive” up there in my introduction. Exactly what that term means can be a little shaky sometimes, but when we’re talking about tax code, it has a pretty clear meaning: people with more money shoulder more of the tax burden. Using this definition, sales taxes are usually something progressives would avoid, since they often hit the poor the hardest. Most sales taxes make life considerably harder for the impoverished, because they increase the cost of basic necessities, making it harder for people to get by.
A National Luxury Tax
This proposal isn’t like that. The secret lies in Title II, Sections 301-303, a provision called the “family consumption allowance.” These provisions allow families to purchase necessities without paying taxes on them. (“Family” means “1 or more family members sharing a common residence”).
This exemption does something interesting: it means that the government would only get taxes from the sales of nonessentials—things that the impoverished, by definition, don’t buy. By allowing essential products to be purchased without the tax, it turns the “national sales tax” into something more like a “national luxury tax”.
In other words, people who spend most of their money on things like food, clothing, and medicine end up paying almost none of the tax burden, while people who spend a greater percentage of their income on luxuries pay a greater percentage of the tax burden. People who don’t have very much money almost uniformly fall into the former group, while people with lots of money almost uniformly fall into the latter group. People with more money shoulder more of the tax burden—it’s as progressive as is gets.
Helping the Needy
The family consumption allowance is a rebate, mailed monthly by the Social Security Administration to families of 1 or more(?!?). According to II§301, the amount of the rebate check is equal to the product of the tax rate and the poverty level.
Using this definition, families making (and thus spending) less than the poverty level could conceivably receive more money in their rebate check than the actual sales tax rate.
This is a similar concept to the Earned Income Tax Credit currently administered by the IRS, with a few exceptions. Unlike the EITC, it the consumption allowance can be claimed by the unemployed. The consumption allowance would also require a lot less paperwork than the EITC—just names, address, proof of citizenship, etc. That’s a good thing for families who are especially time-constrained or people who are poorly educated. And statistics show that such families are exactly the ones who would need such a credit the most.
Tax Evasion
Of course, the Fair Tax Act would also virtually eliminate tax evasion. Right now, companies can move their assets offshore and avoid paying U.S. taxes on them. Some people, particularly business executives and accountants, consider it to be good business.
I, along with most Democrats, consider this to be tax evasion. The Fair Tax Act would put an end to it. The Act would mandate that anything sold in the United States would incur U.S. taxes. There’s really no way to outsource that. Businesses couldn’t get around it by moving production to China, or by moving their income to Bermuda. If they want to sell their product in America (and they all do), it will be taxed.
There are no less than a thousand articles out there that deal with the tax evasion issue, so I won’t say much more about it, but corporate tax evasion is contrary to the spirit of a progressive tax system. It’s currently legal in many forms, thanks to loopholes in our indecipherably complex tax code. That’s bad, and this would put an end to it.
Illegal Immigration
The Act would also provide a serious new tool in the attempt to end illegal immigration. It wouldn’t involve any weapons or border guards or checkpoints or fences—and it wouldn’t cost the government a single extra cent. Again, it has to do with the consumption allowance that I talked about a few paragraphs back.
See, only citizens are eligible for the credit. That effectively increases the cost of living for illegal aliens (okay, okay, “undocumented immigrants”) by 23% (assuming, of course, that they live under the ceiling for such a credit, which I’m just guessing that most do.
Since the primary motivations for the border jumpers are economic, this throws a wrench in the whole concept of entering the country illegally. It gets at the reasons that illegal immigrants are trying to come into America—which is exactly what a lot of Democrats have been saying we should do all along.
Where Does All The Money Go?
The budget of the IRS is currently over ten billion dollars per year, plus the equivalent of a hundred thousand federal employees. Let’s think about that for a moment: ten billion dollars and a hundred thousand people… what could we do with that?
Some of it, of course, would go to the collection agencies established in III§302, but not nearly the scale of the IRS. For one thing, there’s a lot of administrative overhead that gets out of the way because the new Federal Sales Tax Bureau would, for states that already implement sales tax, be working with an infrastructure that is mostly already in place.
So let’s look at what we could do with the money, and with those employees. Let’s assume that a high school can accommodate 2400 students for 3 million doallars a year. That’s an average—in some places it costs more, in some places less, but it’s a fairly realistic estimate. $10 billion would cover the entire cost of operating over three thousand high schools—that’s the total cost of educating 7,200,000 students.
And that doesn’t include the agency’s hundred thousand employees. Let’s say we divided them evenly among the states and put them to work in DMV offices. Anybody who has ever applied for a driver’s license can appreciate the notion of having 2000 extra people in the DMV office. We could do that, in addition to the school thing, for no more than we are already paying just to operate the IRS.
No Tax Cuts for the Rich
The income tax and payroll tax systems that HR25 would replace have not been working out too well for progressives in the past four years. Why? Because the systems we have in place are too obscure. How many people even know what it means to “tighten the tax brackets?” How many people even realize that their income is not all taxed at the same rate?
The simple fact is, George Bush’s “tax cuts for the rich” that were so offensive to the idea of a progressive tax system were only possible because the tax system is so unbelievably complex. Under the system that HR25 proposes, targeting tax cuts at the top 1% of income earners would be not only politically impossible, but literally impossible. Why? Because the system inherently gets a greater percentage from those with more disposable income. (See the section above, “A National Luxury Tax”).
Unlike the current system, the national sales tax would do this without any disparity in the established rates. In other words, the only way that politicians could shift the tax burden away from the rich would be to explicitly give them a lower rate. That, my friends, sits in the dictionary as the cardinal example of “political suicide.”
But Shouldn’t Businesses Pay Their Fair Share?
One of the more obvious questions that comes up when we talk about replacing our entire tax system with a sales tax is whether it shifts too much of the burden away from business. A few people go so far as to say it shifts the entire burden away from business. And quite honestly, I cannot see how that is the case.
The argument that a sales tax shifts the burden away from businesses is fallacious because it assumes that consumers have unlimited disposable income. I will concede that if you are rich enough to believe that, you should absolutely oppose HR25. Most people I know do not have an unlimited supply of money.
If consumers had unlimited spending money, then the businesses could go on as usual. They’d hang on to their existing margins, pass the entire cost of the tax on to consumers, and the price of everything would go up by 23%. Again, that’s assuming that every customer has unlimited money.
In the real world, if the price of almost anything were to actually go up by 23%, they would price almost all of their existing customers out of the market. We’re talking a serious hit to their sales. So, we can expect most of them to change things to keep their numbers up—to decrease margins in exchange for increased sales. They don’t have to, but those who don’t will find that most of their customers can’t afford their products. No customers=No income=No business.
There is actually an exception to this. Businesses that cater almost exclusively to the indescribably wealthy could conceivably pass the entire cost of the tax to customers, but keep in mind that that is a relatively small market (and will remain that way), simply because so few consumers fall into the “indescribably wealthy” category.
Conclusion
It’s kind of hard to believe that I’m finishing up an 1900-word analysis of the tax code. I mean, who am I to evaluate the complex intricacies of tax law?
Ordinarily I’d defer to the accountants on an issue like this. After all, they’ve studied economics and spent years of their life working with and around the tax code. They know taxes like some people know their way home from work. I, by comparison, am a rank amateur.
But this is an issue where deferring to accountants is profoundly dumb. The accountants, as people who make their living off of a tax code so complex that only trained professionals can understand it, are inherently biased against a tax code so simple that garbage men can understand it.
And so I don’t, in this case, trust the people who I would usually look to for analysis. Instead I’ve done my own analysis, and I’m liking the prospect of a tax code that even I am able to analyze. Pretty cool.
Like most progressive Democrats, I’ve learned to be pretty averse to sales taxes. But in this case, we have a proposition that actually bolsters everything that progressives fight for in a tax code. I don’t believe that any progressive worthy of the cause can oppose HR25, and those who give any thought to it should wholeheartedly support it.
The FairTax Blogburst is jointly produced by Terry of The Right Track Blog and Jonathan of Publius Rendezvous. If you would like to host the weekly postings on your blog, please e-mail Terry. You will be added to our mailing list and blogroll.
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June 14, 2006
FairTax Blogburst: A Really Voluntary Tax Structure
Here's this week's FairTax blogburst.
by Terry of The Right Track
There are many reasons to support the FairTax. I managed to do a little research, and found some rather unique points of view that I had not previously considered, and was reminded of some previously-covered ideas that are still worth mentioning.
- For the most part, the FairTax is voluntary. If you want to pay the tax, purchase a new house, car, motor home, etc. If you want to avoid the tax, purchase a used house, car, motor home, etc. The tax only applies to new items.
- No one will ever need to take out a loan to pay taxes, interest, or penalties again, as can all too often happen under our current system.
- Drug dealers and other criminals, as well as anyone else currently paid "under the table", will pay taxes if they purchase new items. Ever seen a drug dealer driving a used car? Ever seen a pimp shopping at Goodwill? I didn't think so.
- Lower income families working multiple jobs get a fantastic incentive to work now, knowing that zero Federal taxes will be withheld from their paychecks. Most of the money from the second job can be applied to whatever previously unaffordable luxury they wish -- perhaps including, for the first time, a home of their own?
- With the abolition of the death tax, homes, farms, and land which might previously have had to be sold to satisfy the government's unquenchable thirst for money can now be retained and kept in the family. In cases where the property has been in the family for multiple generations, can you imagine the gratitude of the family?
- Friends and family can now actually help each other out with tax-free assistance, since the gift tax will be abolished.
- Businesses can actually lower their cost of doing business since they won't be paying the current 7.65% matching FICA tax for each employee.
- It's even a good deal for the environment -- think of all the paper we'll save by not having to file taxes!
But even with all this, we must remember that the FairTax initiative is a grassroots effort. If your Senator or Representative does not support the FairTax, find out why. Then let them know that you do support it. Make phone calls, write letters. Let your friends and family know the details of the FairTax, and why you believe it is such a good deal for Americans. Only through the diligent and concerned efforts of ordinary citizens will these bills ever make it through to the floors of the House and Senate.
The FairTax Blogburst is jointly produced by Terry of The Right Track Blog and Jonathan of Publius Rendezvous. If you would like to host the weekly postings on your blog, please e-mail Terry or Jonathan. You will be added to our mailing list and blogroll.
TD
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May 29, 2006
FairTax Blogburst: The FairTax Rally
This week's Fair Tax Blogburst is written by fellow blogger and friend Ms. Underestimated.
This is not just an idea anymore…it’s a movement! The Fair Tax movement.
What else do you call an event about something as dull and boring as the U.S. Tax Code that draws almost 7,000 to a rally? About 4,500 people got inside the doors, which had to be closed due to the 50,000 square foot Gwinnett Convention Center being at capacity at SIX THIRTY P.M.! The rally didn’t start for another hour, yet another almost 3,000 had to be turned away. People drove from Virginia, Florida, South Carolina, Mississippi, and all over the southeast. Hindsight being 20/20, I’ve heard some of them express disappointment over radio because they only heard the broadcast en route to the rally, and at 6:30 they weren’t even in Georgia yet. They knew they had to turn around and go home, but every single one said that next time, they’ll come a day or two in advance! Some who were turned away simply went to their cars and “tail-gated” with fellow Fair Taxers so they could all listen to the rally as WSB Radio broadcast it live.
After all, who knew there would even be a thousand that would attend? Neal Boortz, the co-author of the Fair Tax Book, certainly didn’t think so himself. In fact, when Neal took the stage at about 8PM, the old curmudgeon was visibly moved. But that’s just where it all begins. Let me take you inside the event in my memory.
I left my office at 3PM, drove 35 miles through horrific Atlanta traffic, and was about the 1,500th person in line. You could feel the passion in the air as attendees clutched their books, displayed their buttons or signs, or signed petitions that were being passed around. We slowly made our way into the Convention Center, and it was packed already. The setup was fantastic, with huge screens dangling from the ceiling above just about every seating section, so everyone was guaranteed a good view of what was going on on the stage. Neal has some fantastic pictures at his site. Here’s a couple of them.
(Photos by Carrie Carden)
Here’s what the inside of the Convention Center looked like, and above is what a portion of the line looked like just to get inside. I am not even a SPECK at the end of this line!
These are just a few of the supporters waving their signs of support inside the center.
Once I got inside, I hunted down a t-shirt, but to no avail - sold out. I did get a signed book, well, two actually, and a “fairtax.org” stamp for money:
What the heck… I figure if I stamp all of my bills, at least ONE of them might prompt someone who knows nothing about HR25/S.25,HR5 to at least look at the bill they’ve just been given from the store clerk, go “what’s fair tax?” and then go to the internet to read about it. Oh, well... back to the rally...
Neal was first up, and spoke to a rousing applause. He told us of how awed he was by the turn-out, and that it spoke volumes to him of just what this had become. He was actually surprised because he thought people wouldn’t come because it was the night of the American Idol finale (oh, please!). He also let us know that not only did the Gwinnett Convention Center DONATE the facility and time, but the stage, lighting, sound equipment, video screens, etc., were also all donated for the cause!
Neal spoke about the Fair Tax, then introduced Congressman John Linder. They both engaged the audience in rapt attention, raucous applause, and cat-calls when the IRS was mentioned. Then, as we’d been promised, Congressman Linder came bearing good news. In the past week, Hastert’s office had been in contact with Linder’s office, and Hastert has set aside a one-hour block of face-to-face time for Congressman Linder to discuss the Fair Tax (HR25) with President Bush! That eclipsed the other good news we would receive by video from Sen. Saxby Chambliss later on, that finally Sen. Johnny Isaakson has signed on to co-sponsor the bill with Sen. Chambliss!
Then Sean joined the fray. Sean came prepared with written questions he’d gotten from his listeners that day as he broadcast from Neal’s studio at WSB Radio. Sean proposed the questions to both Congressman Linder & Neal, and you know that Neal brought the most howls with his wry sense of humor.
As they talked up the Fair Tax, Congressman Linder reminded us that before the Revolutionary War, a clear 2/3 of the people didn’t want to have anything to do with a battle against the British Crown. But due to the hard work and persistent of a few determined people who yearned for their liberty, they fought all rationality and the majority who were okay with the status quo, and forged ahead to secure that very freedom that we have today. If it weren’t for those determined few, who knows what our America would be like today? Many thanks go to them.
Sean had to hurry off to do Hannity & Colmes from the Atlanta Fox affiliate, so he came in specifically to be with us for that 20-minute period of time. Sean really gets it. Next up, former senatorial candidate, Herman Cain.
For those of you who’ve never been blessed enough to hear Herman Cain speak, you have no idea what you’re missing. I am really sorry he lost out that campaign to Johny Isaakson in GA, because Herman Cain is TRULY a dedicated REAGAN conservative Republican, and he is wholly behind the Fair Tax. In fact, he sits in for Neal on his show when Neal’s out. Neal’s affiliates will accept NO OTHER substitute except for Herman Cain. Otherwise, they prefer to just run a “best of” in Neal’s absence.
Herman regaled us with anecdotal stories about his grandfather, who was a poor Georgia dirt farmer. He remembered that going into town, his grandfather used to say to the kids “them that’s goin, get in the truck.. them that’s stayin, GET OUT OF THE WAY!” The audience went WILD! He reminded us that those who want to forge ahead and make change in the world should use that analogy in our lives if we want to affect change. He had the audience, at the appropriate times, shouting “GET OUT OF THE WAY!” A lot of people were yelling “AMEN, REV. CAIN!” I don’t know if he’s a reverend or not, but he definitely moves me. In fact, the gentleman next to me said “Lord, if he keeps this up, I’m gonna start speaking in tongues!” That was not only humorous, it was also true. Herman Cain is riveting. He didn’t stop there.
He continued stories about his grandfather, about when all the potatoes had been pulled from the ground and loaded on his truck, that all the kids would load in the truck with him. He said his grandfather didn’t take the smooth, already-dug grooves in the road.
Rather, his grandfather drove over every bump, rock, rut, etc., and when they came to the market, he asked his grandfather, “why didn’t you just take the regular road instead of making the ride so rough?” He said it was then he noticed that back in the truck bed, all the big potatoes had risen to the top; and all of the little potatoes had settled at the bottom. Then he turned his attention directly forward, and forcefully shouted “.. and YOU people ARE THE BIG POTATOES!”
My God, I though it was the second coming! Would the roof stay on? Or would the trembling of the building turn out to be just be the response of the crowd? Either way, it was absolutely electrifying! And talk about feeling empowered.. WOW! I have goosebumps just remembering it as I write! He definitely had the crowd motivated, and that’s what made us feel so good. That we ARE the ones who want change, and are determined enough to see it through. There was also a tangible sense of camaraderie in the building, as if we have all just been reminded of our mission, and accepted the challenge.
John Stossel of ABC also came to speak for a few minutes, and he gave us this amazing tidbit: 1% of the people of this planet affect change; 9% of the people watch change being affected; and the other 90% wake up one day and say “what happened?” We ARE that One Percent!!!
I’m sick to death of those people who support the Fair Tax, but don’t participate in these events or even sign petitions because of their defeatist attitudes. “Oh, it’s a good idea, but it will never happen,” or “well, it won’t really work because of XYZ.” If our founding fathers had had that attitude, then… well, I don’t even want to ponder that lunacy.
If the patriots of the revolutionary war can do something as monumental as they did, then can’t this bunch of “potatoes” do even less? Let’s do it, everyone… let’s get rid of the IRS, and get the government out of our lives!
Folks, I’m here to tell you; after what I witnessed at the rally, I cannot and will not be defeatist about it. Everything good or bad that exists today in our country was brought about by grassroots movements. And if there’s one thing I learned last Wednesday, it is this: IT’S POSSIBLE!
The Fair Tax Book : Saying Goodbye to the Income Tax and the IRS
Buy the book TODAY (click the above link). Heck, buy 2 or 5, and send them to friends! And many thanks to
the Americans for Fair Taxation, who sponsored the event. Group President Ken Hoagland (right) also spoke to a roundly appreciative crowd.
If you have Comcast cable, you may be able to see video of this rally free from Comcast’s On-Demand service. Details are here.
The FairTax Blogburst is jointly produced by Terry of The Right Track Blog and Jonathan of Publius Rendezvous. If you would like to host the weekly postings on your blog, please e-mail Terry or Jonathan. You will be added to our mailing list and blogroll.
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