FairTax, FairTax, FairTax.....

I have been a proponent of the FairTax since I first heard of it in 2002 or 2003. It proposes to eliminate all federal income and payroll taxes on individuals and corporations and replace them with a national retail sales tax on all goods and services. It would also replace the IRS with an Excise Tax Bureau and a Sales Tax Bureau within the Department of the Treasury. Introduced in 1999 by John Linder, it is currently floating around the House of Representatives as HR. 25 and the Senate as S. 122. A sunset provision has been provided to repeal the 16th Amendment eight years after implementation of the FairTax, else the FairTax will expire.

I don't suppose there are many alive today that remember, but America did not always have an income tax. A brief history lesson: up until 1862, America relied mainly on internal taxes on distilled spirits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds, and slaves, and on external taxes such as tariffs on imported goods. The Civil War brought about a need for increased revenue, thus was the first income tax implemented. In 1868 taxes were refocused on tobacco and alcohol and in 1872 the income tax was eliminated. It returned in 1894 and 1895, and then declared unconstitutional as the income tax violates Article 1. Believe it or not there was actually a ten year period, between 1802 and 1812, where there were NO FEDERAL TAXES AT ALL. I guess that was because we weren't fighting with anybody and nearly everyone worked for a living. The income tax, via the 16th Amendment to the Constitution, was first proposed in 1909 by Nebraska senator Norris Brown. It was passed by the Senate on July 12, 1909 then was kicked around by the House of Representatives and the States for the next couple of years. It achieved ratification by three fourths of the States on February 25, 1913 and was enacted shortly thereafter. Learn more about the income tax here and about the history of the 16th Amendment here.

Our current tax system is broken. No one, not even IRS employees, fully understands it. It is overly complex, burdensome, and easy to manipulate. No one even seems to be sure how long it is, with estimates ranging from 2500 to 2.5 million pages and and anywhere between 1 million and 500 million words. The closest I could get to a concrete number is 71,684 pages. That's just ridonkulous. Hidden compliance costs are estimated by one source as between $215-987 billion annually. It is used frequently by politicians to provide benefits to key lobbying groups and corporate backers and as a way to regulate and modify individual behavior. It has to stop.

The way to stop it is the FairTax. As explained before, the FairTax proposes to eliminate all federal withholding and payroll taxes and replace them with an across the board, no deductions or loopholes tax on new sales and services at the inclusive rate of 23%. Please note the new part there...used items will not be taxed. This means while keeping 100% of your paycheck, for every $100 spent, $23 of that will be tax. The tax will be included in the price of the item, so the price you see on the shelf will be the price you pay at the register. The same applies across the board, from groceries to gadgets and gizmos to real estate and that new car you've been eyeballing. But wait a second, you think....won't that added tax increase the cost of those items out of my range? I mean, we're talking about adding 23% onto the cost of goods whose prices are already high. The answer to that question is no, it won't, at least in most cases, and the reason is this: a dirty little secret most companies don't want you to know and most people don't take the time to learn about is that corporations don't pay taxes. Yup, you read that right. Zip, zilch, nada. So how do they get away with it, with the United States having some of the highest corporate tax rates in the world? They pass their tax costs off on consumers. By estimating their annual tax liability, they then adjust the cost of their goods to compensate. That means you, the consumer, are the one paying those taxes.

A short lesson on embedded taxes: in every item purchased today, there is what's commonly referred to as embedded taxes. Similar to the European Value Added Tax (VAT), embedded taxes are added at every point of production and distribution from raw material to finished product on the shelf. The company that procures or produces the raw material adds to the cost of material they provide to the manufacturer, the manufacturer adds their cost to the distributor, the distributor adds their cost to the wholesaler, and the wholesaler adds theirs to the retailer. After tacking on their taxes, the retailer then passes their cost on to you, the consumer. The total of these taxes amounts to an estimated 22% of the finished product, which, under the FairTax, would vanish. Poof...gone, leaving the consumer paying the same amount as before, only with 100% of their paychecks. Well, you ask, won't these greedy corporations try to hold on to that surplus and not pass those savings on to their customers? The answer, initially, may be yes. There's a good chance that companies will attempt to hold on to those windfall gains as long as they can. That's where a free market economy comes into play. As soon as a competitor tries to grab a larger market share by lowering prices, the next will have to also, just to remain competitive, leading me to believe that we would see an initial surge in prices, followed quickly by a sharp drop....of approximately 22%.

As an added bonus, it would also tax illegal activity. As I'm sure most are aware, thieves and drug dealers don't pay income taxes. But they all need groceries, cars, and Xboxes. Meanwhile, many take advantage of social services offered such as food stamps, SSI disability, and healthcare services. It is estimated that the black market economy in the US may comprise as much as 10% of the GNP. In 2012, that worked out to approximately 1.6 TRILLION dollars. That's an enormous amount of untaxed revenue.

It would also go a long way towards solving the illegal immigration problem, as many of the immigrants who are not paying taxes, yet still receiving social benefits, would now be paying for the benefits they receive, taking the burden off the shoulders of legal taxpayers.

Not to mention the repatriation of approximately $11 trillion held in offshore tax shelters. Now THAT'S a stimulus package.

To find out more go to the FairTax website. Neal Boortz has also written a couple of books on the subject..."The FairTax Book" and "FairTax: The Truth: Answering The Critics". Both are available at Amazon and Barnes and Noble.