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FAIRTAX, THE TRUTH:  ANSWERING THE CRITICS

Chapter 13—Still not convinced?  Our Vision for Tomorrow

You've read The FairTax Book, and now you're at the end of The FairTax, The Truth, and you're still not convinced.  Please... tell us...just what do we have to do here?  Would a personal visit help?  Do you want us to come take you out for dinner?  What is it going to take? 

Look, we've handled (with aplomb) pretty much every objection with any substance that has been thrown at the FairTax.  We even took the time to respond to that Scientology nonsense.  Now that doesn't mean we've dealt with every single objection; just the ones that have the appearance of being somewhat thought-out and have been presented with some degree of earnestness.  We pretty much ignored, for instance, the objection that we just want to get this passed because we're rich and we want to get out of paying income taxes.  Yup.  That's it.  You found us out. 

We could spend some more time here trying to explain the difference between taxing wealth and taxing income, but what good would that really do?  Besides, we're both pretty near retirement and pretty soon we're not going to have any income to tax anyway. 

Here, then, is our last-ditch effort to convince you that you ought to get on the FairTax bandwagon; that you ought to immediately put aside all but the most basic life-sustaining functions and become a volunteer for the FairTax. 

Now we do admit that the FairTax plan isn't perfect.  No tax plan is. How, after all, can you come up with a perfect way for a government to use its police power to seize from its subjects the trillions of dollars it takes to sustain itself?  There's well over $22 million private sector dollars invested in private sector resources to develop this plan.  If you can come up with something better, something perfect, we're certainly not going to pay you $22 million, but we think we know where we can get you a pretty good book deal.

Here's our last gasp.  We're going to see if we can enlist you into the FairTax army.    We're going to ask you to crank up your imagination for a moment here ... and by "you," I mean those of you who think that this FairTax thing is a bad idea.  Get your imagination in gear, and then we're going to paint a little scenario for you to consider. 

We want you to imagine life under the FairTax.  Just set aside all of your objections and questions for a few minutes.  Put the "what ifs" and "buts" away and imagine that for your entire life you have been living and working in a United States where the federal government is funded by the FairTax, not a tax on your income.  For the moment please set aside any misgivings you might have as to whether or not the FairTax would work.  Just pretend for a moment that your reality is the FairTax ... and accept this scenario as we have presented it. 

To help you out we're going to tell you how your day-to-day life would be under the FairTax. And, then, we'll see how you feel about getting rid of the FairTax you've been living with all of your hypothetical life and replacing it with a grand new idea of a combination of business and personal income taxes combined with some payroll taxes and a few other goodies thrown in.

We know we need to get to it here, but we just want to make sure the ground rules are clear here.  If we haven't accomplished this then you should return this book and head back to the book store; this time to the children's section

OK...Here is your imaginary "reality", the tax system you've been living under your entire life...thus far. 

• On every payday you get your complete paycheck. There are no deductions.  No withheld income tax, no Social Security Tax, no Medicare tax. If you earn $2,000 per week, you get a check for $4,000 every two weeks.  You have never had to make a distinction between what you earn and your "take-home pay." 
• Throughout your work life, every time you have ever earned a raise where you work, and every time you've ever changed jobs for more pay, you have never had to try to figure out in your mind how much of that raise, or how much of your new paycheck, you are going to be able to "keep."  A $5,200 per year raise has always meant an extra $200 every other week in your paycheck. 
• You have never had to save receipts or create any records pertaining to federal taxes.  The only real purpose you have for a receipt is in case you want to return that ugly dress your husband bought for you.
• You have always been able to invest what you earn without first having to pay any federal taxes on it.  Every time you've had money left over at the end of the month you've put that money into a savings account or other investment.  That money has never been taxed, nor has the interest you earned and nor has the gains on your investment.
• When your parents died they left all they had for you, just as their parents did for them.  There were no taxes when your parent's inherited your grandparent's estate, and no taxes to be paid when you inherited from your parents.  You know that you will be able to leave whatever you have earned and accumulated to whomever you wish without any tax consequences.  You have never known the death of a loved one to be a taxable event.
• Every time you have gone to the store to buy an item, and the price tag said $19.99, you have handed a $20 bill to the cashier and received one penny as change.  All your life the price tag on the item has been the price you paid at the cash register, all of your life the tax man has taken his 23% out of that purchase price, and all your life that stupid little trick of trying to make something appear to be cheaper by lopping one cent of the price has ticked you off.
• There are four people in your household. You, your spouse and two rug rats. At the beginning of every month you get a check or a credit to your checking or charge card account in the amount of $506.00 to compensate you for the federal sales taxes that are included in the price of everything you are expected to buy during that month -- right up to the poverty level.  You know now, as you have always known, that you can purchase the basic necessities for your family without paying any tax whatsoever to the federal government.
• For you, paying taxes to the federal government has always been voluntary.  You save your money after providing the basics to your family, and you're not taxed.  You spend your money, you are taxed.  Your choice. 
• You have never had to fill out a federal tax return.
• You've never received a letter from the IRS.
• For all you know an IRS agent is someone who works for the Iowa Railroad System.
• You have never had your bank make a report to the federal government on your deposit or withdrawal habits, either with or without your knowledge.
• The federal government has never surreptitiously gone to your bank to peer through your statements for the past seven years.
• Though you've never heard of something called the Alternative Minimum Tax, the very sound of that phrase is unsettling to you.
• You have had to hide under your bed to avoid getting a good job, such being the strength of the American economy.
• You have never known of any instance where any politician in Washington has ever tried to use federal tax policy to control your behavior in any way.
   

Now that doesn't sound like such a bad deal, does it? You keep all of the money you earn and you get five hundred bucks a month from the feds. Plus...you only pay taxes when you spend money.

Now that we've established your economic situation, along comes a politician who has a grand new scheme for a new tax system.  Now the true purpose of this politician's proposed new tax code is to take more of your power over your own economic life and transfer that power to Washington DC.  The politician gets together with some DC power brokers and comes up with a grand idea.  Before it can become the new law of the land, he has to explain it to you and get your support.  After all, it's going to take a Constitutional amendment to get this done.

Here we go.  Here's the great new idea.  Remember, now, you've been living under the FairTax since the day you were downloaded.  So here is this caring, compassionate politician with a great new idea that is going to make your life so much more pleasant.  Listen, and tell us that he has a better idea. 

The plan is simple. First the inclusive national retail sales tax is going to be removed from the price of everything you buy. This will mean that everything will cost 23% less than it does now.

So far so good, but you had better be real quick with your celebrations, because all is not as it seems.

The next step in this politician's grand plan is to have the federal government tax every single penny that you earn.  Now you're a pretty successful kind of person, and this new tax plan this politician is trying to sell you is going to tax you based on how successful you are at making money.   But hey! You might think that it's perfectly fine for you to pay more taxes if you earn more money.  After all, that's the way it has been since you drew your first pay check.  The more you earned, the more you spent; and the more you spent the more retail sales tax you ended up paying to the federal government.

Well, your politician friend has a bit of a twist for you.  Sure, you're going to pay more income tax as your income goes up; but here's the surprise.  The more successful you are the higher the income tax rate is going to be!  

Oh!  You want details?  Well, for some reason this politician is a bit reluctant to give you the details on just how this fancy new income tax is going to hit you, but we've managed to look into a crystal ball and copy down the figures.  So here you go.

Now ... as you absorb these figures, remember this:  Up until now all you have ever done is pay 23 cents out of every dollar you spend to the federal government. That's it.  We're not trying to hammer this in...but remember that you've never paid anything on any money you've invested or saved. 

Now...under the grand new scheme...here's what you will pay:

1.      You will pay 10% of every dollar you earn up to $15,650.

2.      You will pay 15% on every dollar you earn between $15,650 and $63,700.

3.      Then you'll pay 25% on every dollar from $63,700 to $128,500.

4.      Next you'll pay 28% on every dollar from $128,500 to $195,850.

5.      Then you'll pay 33% on each dollar from $195,850 to $349,700.

6.      Finally, you'll pay 35% on each dollar over $349,700

We'll assume you're in the middle income bracket.  Does the plan sound good to you so far?  You used to pay a 23% inclusive sales tax on purchases past the poverty level ... now you'll have to pay 25%, not just on what you spend, but on what you earn!  Push those earnings up a bit and the rate climbs!

You're ready to donate money to this character's campaign, aren't you? 

Not only will you, as an individual, be taxed, but so will every individual and every business that plays any role at all in bringing every single product you buy and every single service you use to the marketplace.  Now you can rest assured that these businesses and individuals aren't going to take these new federal taxes lying down.  To them, the new federal taxes are just going to be another cost of doing business, and like all other business expenses, they're going to be factored into the cost of whatever they produce. These taxes will end up embedded into the prices of products in our retail marketplace.

You've heard, haven't you, the old saying about stuff rolling down hill?  Well that stuff would be taxes, though you've probably heard the stuff referred to as something else. 

Checking back with ya!  Does this grand new tax plan sound good to you so far? 

Wait!  There's even more to the fancy new tax plan.

Next your political benefactor is going to take away your $500 per month rebate from the government. In its place he's going to tax every penny you earn.  You are going to get some tax deductions under this plan, but these deductions don't come anywhere close to the prebate you've been receiving all your working life. 

Now if you aren't already dancing in the aisles over the prospect of this great new tax plan, this ought to do it for you.  Not only does the new plan this politician is trying to sell you tax your income, but there's also going to be a nifty little thing called payroll taxes! 

All your life Social Security and Medicare has been paid out of the federal revenues generated by the FairTax.  The rates your politician is proposing for the new federal income tax isn't going to cover the cost of Social Security and Medicare, so you're going to have to pay for them separately. 

First; Social Security.  Your employer is going to start deducting 6.2% out of every one of your paychecks.  It's going to be called a "contribution," but there is nothing voluntary about it.  Your employer is going to have to "match" that "contribution" with another 6.2%.  Come on, now.  You're smarter than that, aren't you? You realize that your employer is not going to merely swallow that 6.2%.  It's either going to come out of your next pay raise (good luck on that for a while) or the price of whatever you are making and selling is going up.  You also know that if you were to change jobs under this grand new plan, any new salary would be reduced by the employer's increased costs for this "matching contribution" nonsense.

Medicare? Nope, it won't be funded out of the income tax revenues.  Just like Social Security, you're going to get nailed with yet another new tax to cover Medicare!  How much?  Well, the new plan is going to use that same "matching contribution" idea, so you'll end up paying another 2.9% of everything you earn.

Are you adding all of this up?  You'll be paying 25% on your income for income taxes, plus those Social Security and Medicare taxes.  So—including the matching—you're in the 40% range, and remember ... right now you're only paying 23% on everything you spend. 

Come on, folks.  Be serious.  How in the world is any politician going to be able to sell such a ridiculous idea to you? 

Wait! We're not through here.  There are still more facets to this new tax system that you have to consider and pass on.

• Do you have any investments out there?  You have always been able to invest with absolutely no tax consequences.  Now you learn that if this new tax idea becomes law, not only are you going to have to give the government a share of your earnings before you even invest them, but then you're going to also have to pay the government on any money you earn with that investment!  They're going to call it a "capital gains" tax.  What they're really talking about is a tax on capitalism.
• We're going to have a death tax!  Isn't that just grand?  When you die your family is going to have to file a complicated estate tax return. A huge amount of the wealth you have managed to build during your life is going to be sent to the government. Your survivors may well have to sell the family business in order to come up with the money to pay for these death taxes.

Just a few more points about this new tax plan they want you to embrace:

• You're going to have to keep records of all of your financial transactions.
• Every year you're going to have to spend no less than about 30 hours or spend hundreds of dollars to hire someone to fill out tax forms for you.
• Trillions of dollars will leave the American economy to work in foreign markets where the tax treatment will be much better.  Billions more will be spent by businesses and individuals in this country to cover the cost of compliance with the new tax scheme.
• If you make mistakes on your federal tax forms you will be hit with a huge penalty and interest. You could even go to jail.
• The government is going to have access to all of your financial records to make sure that you are paying what some politicians will decide is "your fair share."
• Politicians will soon learn that they can curry favor with voters by pandering to their jealousies and raising taxes on the evil rich.  If you work hard, that would be you. 
• Thousands of people will start earning big bucks inside the Beltway lobbying members of congress for favorable tax treatment for their clients.
• America will no longer be the world's number one tax haven.  Businesses will pack up and leave to find a place where they can do business without a tax component on capital and labor. One of the jobs lost could be yours.

The question, of course, is why does this politician want to change the tax system in this way? Why is he trying so hard – spending so much money – to convince you that his new system would be so much better for you and the country than the simple national retail sales tax you've been paying whenever you buy something? 

There's a one-word answer to that question.  Power.  

The more politicians can control your access to your own wealth and earnings, the more powerful they are.  The more politicians can affect businesses and important business decisions with tax policy, the more powerful they are.  The more a politician can adversely affect the financial picture of one segment of our economy for the benefit of another, the more powerful that politician is.  The more politicians can pander to the petty fears and jealousies of people by punishing high achievers for their efforts, the more powerful they are. 

Under the FairTax these politicians have had no power to use tax policy to favor one group of voters over another for the benefit of votes. Bring in the new income tax scheme and wonderful new horizons for manipulation and power brokering open up for any politician who would like to use it. And what politician wouldn't?

There.  Hopefully this exercise has given you somewhat of a new perspective on the FairTax.  No, the FairTax isn't perfect.  Can anyone really conceive of a perfect system whereby government can use its police power to forcibly take a person's private property to fund its operations? 

But you do have a choice, my friends.  If we had the FairTax now ... would you be willing to make the switch?

We, of course, believe that after research at some of the most prestigious institutions in America  the FairTax, as laid out in 133 pages, should be passed as it is.  That is not likely in the legislative process.  Indeed, after nearly a decade of talking about the FairTax, some very interesting and valuable recommendations have been brought to us.  For example:  The effective date of the act could be made contingent on the repeal of the 16th amendment.  That is not in the bill as written. 

We know that the Washington DC lobby interests will move from gaming the current code to finding exemptions for this industry or that interest. Perhaps we should change the bill to require a "super majority" to exempt or exclude any good or service.  Serious people who agree with our goals may disagree with our way of achieving them. 

Most nations which have gone to a consumption tax have gone to a value added tax (VAT).  We believe that the VAT, which taxes every increase in value of a product at a low level and ends up costing the consumer upwards of 20% in some countries, is too hidden and too easy to raise.  It clearly is, though, easier to administer. 

Some have suggested that we have a lower rate on sales and a small tax on the incomes of very wealthy income earners.  This is where we draw the line.  Our current income tax began as a flat tax on high income earners.  It was flattened again in 1986.  It has been amended 16,000 times in the last 20 years.  Every nation that starts out with a little of each has wound up with a lot of both.  One or the other!  Not both!

If we go back to the principles that the tax code must be simple, fair, voluntary, transparent, border neutral, and industry neutral as well as strengthen our retirement programs, and pass anything that accomplishes those goals, we will have succeeded.

Our Vision for Tomorrow is an America in which every American, including you, can be a voluntary tax payer paying taxes when you choose, as much as you choose by how you choose to spend. 

Our Vision for Tomorrow is an America where an individual driven to achieve and excel through hard work is not punished by a tax system that singles him out for mountains of record-keeping and paperwork all leading to a punitive increase in his taxes. 

Our Vision for Tomorrow is an America with a tax system that can be used to spread freedom across the world.

Under the FairTax Vision for Tomorrow every time an American buys a loaf of bread or a new car they will know, to the penny, just how much of that money that they earned is going to the federal government. 

Our Vision for Tomorrow sees a government that is a partner with the business community and the people, not an adversary; a government with a tax system that encourages economic development and the creation of new business, rather than a government and a tax system that chases valued businesses to foreign shores.

Our Vision for Tomorrow is one where governance returns to the local level; where communities are allowed to make the important decisions regarding their government and their schools.  No longer will politicians be able to hide regulations and programs that control every aspect of our lives in nine million words of confusing and draconian codes and regulations.  The FairTax will demand political honesty.  If the congress decides to come up with a new program, or the expansion of a current program, that program will show up on the spending side of the ledger for you and other citizens to see.  It's called transparency; and with the FairTax, with the beautiful simplicity of a tax system based on consumption spending, you will be more able to hold your elected officials accountable for the decisions that they make to expand the cost and the scope of government.  Good for you; perhaps not so good for the people wanting your votes.     

Perhaps that point needs expanding somewhat.  Today most Americans do not think twice about government spending because they have somehow come to believe that someone else is really paying for it.  This is especially true for the bottom 50% of our income earners, who pay no income taxes and are disproportionate beneficiaries of government spending.  It's also true for the vast majority of our retired citizens.  Under the FairTax nobody pays federal taxes on the basic necessities of life.  But when you make the choice to spend beyond those necessities, you are taxed.  Whether you are poor or retired, you will pay the tax on all spending above the poverty level.  With more people actively participating in funding our government, more people will want to pay attention to just how that money is spent.  As we said, good for you – but maybe not for the politicians. 

Our Vision for Tomorrow sees an America where jobs are insourced, not outsourced.  You have read where former Secretary of the Treasury, John Snow, said, "You have just proposed the biggest magnet for capital and jobs in history."  We will welcome legal immigrants to our country to do these jobs and they will not only contribute tax dollars to our government every time they buy a loaf of bread, but will have an incentive to come here legally and get in line to become citizens.  Under the FairTax, you see, only legal residents escape taxation on the cost of basic necessities.  Prospective citizens will have a sense of ownership in the future of our country and will be just as interested as you are in throwing out the illegals who come here to take advantage of government-funded largesse or to get involved in criminal activity.

Our Vision for Tomorrow sees an America that becomes the safest and most secure tax haven for trillions of dollars now offshore.  The return of these dollars to our markets will make your and your neighbor's "nest eggs" grow dramatically.  The capital infusion will add to job creation and thus more consumption and more revenues to help deal with the growth of our entitlement programs.  It will also reduce interest rates for all borrowers.     

Our Vision for Tomorrow sees an America that enjoys a virtual $400 billion per year tax cut.  This is a good estimate of the amount of money that individuals and businesses now spend every year simply to figure out and obey our current tax code.  With the tax code abolished and the collection process simplified, this money will stay in our pockets where it can work for economic growth; it is money no longer spent to feed the federal bureaucracy.

Our Vision for Tomorrow sees an America which becomes an exporting behemoth selling goods and services into a global economy unburdened by the 22% tax component now in our price system.  Our balances of trade and payments will improve because of it.  Other nations' sales to Americans will face the same tax treatment as our sales to their citizens have faced for decades.  Imports to us will no longer have an advantage at our checkout counters over our domestically produced products. 

Our Vision for Tomorrow sees an America where no one will any longer to be able to live "under the radar".  Beneficiaries of illicit money and illegal labor will pay their share of our government burden each time they buy a car or a loaf of bread.

Perhaps our most exciting Vision for Tomorrow is that our grandchildren will keep what they earn.  A tomorrow where they will not face a doubling of the payroll tax on every dollar they earn to pay for our retirement benefits.  A tomorrow where interest rates will be lower, making homes and cars more affordable.  And a tomorrow where savings will not be punished so saving for their children's education and putting money aside for retirement will be easier.

Do we have some rather grandiose ideas as to the changes that can be brought about by the adoption of the FairTax?  Yes, we suppose we do.  But we don't feel that these are pipe dreams.  With the economic revolution that would be brought by the FairTax, and with the massive transfer of power from the federal government to the people that would be the inevitable result, we are confident that these ideas, our Vision for Tomorrow, can be fully realized.  And we're not alone.  Millions of Americans, from presidential candidates to renowned economists to union members see the opportunities that await us as well. 

Finally, isn't that what life is all about?  Don't we seek, throughout our lives, to leave a future for our children and grandchildren better than the world our parents left to us? 

It is our view that this discussion of freedom, growth, and opportunity cannot even take place under the current tax code that punishes initiative and thrift and rewards consumption.  It is our view that reversing the incentives so that we encourage people to produce and invest and save will give our children an opportunity to realize that Vision for Tomorrow and the FairTax does just that!