The candidates running for Presidential Election 2008 are discussing issues for the primary election – not enough are talking much about the taxation situation that is tied in with the economy and government spending. Since 2005, the Fair Tax Act, a proposed legislation initiated by Rep. John Linder (R-GA) has languished in Congress. While it is true that it is up to Congress to clean up their act when it comes to taxation and over-spending, the President of the United States must also participate in reform and push it the idea with members of Congress. The Executive Branch is in charge of the IRS (Internal Revenue System) which has become a hated government agency because of its power and methods, sometimes being called the American Gestapo.

John Linder and his co-sponsors carefully researched a better national tax system; based on what former Rep. Dick Armey (R-TX)[I] had tried to do with his flat-tax proposal and his uncomplicated income tax system proposal. Carrying it further, the Fair Tax Act would rescind the 16th Amendment, the income tax system, and replace it with a consumption tax that would be a fixed percentage across the board. The committee gathered information from leading economists and other experts in order to come up with a reform of the American tax system that would be beneficial to all. Dick Armey spent 18 years in the House of Representatives trying to promote and initiate reformation of the governmental system of the United States. While this bill has been kicked around and basically ignored by this presidential administration, as well as members of Congress, presently there are 67 in the 110^th US Congress who are behind it. This has been a long fight, but the end result will be better for the American people, as well as the government – and will be an added bonus to the welfare of our economy.

The FairTax Book, (pictured at left) was co-authored by Neal Boortz (Libertarian) and John Linder (Conservative-Republican), was published on August 2, 2005, as a method of reaching out to the public in understanding and supporting the movement to de-fang the IRS and get rid of the intrusive, unfair income tax system.

Wikipedia entry explains the proposed tax system:

The FairTax (H.R. 25/S. 1025) is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including Alternative Minimum Tax), payroll taxes (including Social Security and Medicare taxes), corporate taxes, capital gain taxes, gift taxes, and estate taxes[II] with a national retail sales tax, to be levied once at the point of purchase on all new goods and services.[III] The proposal also calls for a monthly tax rebate to households of citizens and legal resident aliens[IV], to “untax” purchases up to the poverty level. The sales tax rate, as defined in the legislation, is 23% of the total register price (23¢ on top of every #1 – calculated the same way as income taxes), which is comparable to a 30% traditional state sales tax (30¢ on top of every $1). Because the U.S. tax system has a hidden effect on prices, it is expected that moving to the FairTax would decrease production costs from the removal of business taxes and compliance costs, which is predicted to offset a portion of the FairTax effect on prices.
With the rebate taken into consideration, the effective tax rate would be progressive on consumption and could result in a tax burden of zero or less for some taxpayers. However, opponents assert that while progressive on consumption, the tax could be regressive on income. Opponents claim it would decrease the tax burden on high income earners and increase the tax burden on the middle class, while the plan’s supporters argue that it would increase purchasing power,[V]and decrease tax burdens by broadening the tax base and effectively taxing wealth.[VI] Many mainstream economists and tax experts believe consumption taxes, such as the FairTax, would have a positive impact on savings and investment (not taxed),[VII] ease of tax compliance, increased economic growth, incentives for international business to locate in the U.S.,[VIII] and increased U.S. international competitiveness (border tax adjustment in global trade). However, critics argue that it could be difficult to collect, having challenges with tax evasion, and that it may not yield enough money for the government, resulting in cutbacks in spending, a larger deficit, or a higher sales tax rate.
The FairTax has generated a large grassroots tax reform movement in recent years, led by the non-partisan group Americans For Fair Taxation. Increased support was created after talk radio personality Neal Boortz and Georgia Congressman John Linder published The FairTax Book in 2005 and additional visibility is being gained in the 2008 presidential campaign. While the proposed bill has yet to have a major effect on the tax system, the Fair Tax Act has the highest number of cosponsors among tax reform proposals (attracting 67 in the 110^th United States Congress), gathering much strong support than popular flat tax legislation.[IX] A number of congressional committees have heard testimony on the FairTax; however, it has not been voted on in either Chamber. The plan is expected to increase cost transparency for funding the federal government and supporters believe it would have advantages with taxing illegal activity and illegal immigrants. Because the FairTax plan would remove taxes on income, tax deductions would have no meaning or value and some law makers have concerns about losing this method of social incentive. The legislation calls for an aggressive repeal of the Sixteenth Amendment, in order to prevent Congress from introducing new income tax legislation in the future. …
The FairTax legislation would apply a 23% federal retail sales tax on the total transaction value of a purchase; in other words … American sales taxes have historically been expressed as a percentage of the original sales price (tax-exclusive); items priced $100 pre-tax cost $130 with the tax added. … Proponents argue that the 23% number represents a better comparison to income tax rates, which are presented as inclusive rates (See Presentation of tax rate). Critics also argue that the sales tax rate would need to be higher in order to be revenue neutral (See Revenue neutrality).
The tax would be levied on all U.S. retail sales for personal consumption on new goods and services. A good would be considered “used” and not taxable if a consumer already owns it before the FairTax takes effect or if the FairTax has already been paid on the good. Exports and the purchase of intermediate business sales would not be taxed, nor would savings, investments, or education tuition expenses as they would be considered an investment (rather than final consumption). Personal services such as health care, legal services, financial services, haircuts, and auto repairs would be subject to the FairTax, as would renting apartments and other real property. In comparison, the income tax system also taxes such consumption indirectly by taxing the income used for purchase. State sales taxes generally exempt these services in an effort to reduce the tax burden on low-income families. The FairTax would use a monthly rebate system instead of the common state exclusions. The FairTax would apply to Internet purchases and would tax retail international purchases (such as a boat or car) that are imported to the United States (collected by the U.S. Customs Service). …
The President’s Advisory Panel for Federal Tax Reform cited the rebate as one of their chief concerns when analyzing their national sales tax, stating that it would be “the largest entitlement program in American history”, and contending that it would “make most American families dependent on monthly checks from the federal government”. Based on the advisory panel’s tax rate (which differs from the FairTax legislation), “the rebate program would cost more than all budgeted spending in 2006 on the Departments of Agriculture, Commerce, Defense, Education, Energy, Homeland Security, Housing and Urban Development, and Interior combined.” Proponents point out that income tax deductions, tax preferences, loopholes, credits, etc. under the current system was estimated at $945 billion by the Joint Committee on Taxation. This is $456 billion more than the FairTax “entitlement” (tax refund) would spend to cover each person’s tax expenses up to the poverty level. In addition, it was estimated for 2005 that the Internal Revenue Service was already sending out $270 billion in refund checks. …
The FairTax’s impact on the distribution of taxation or tax incidence (the effect on the distribution of economic welfare) is a point of dispute. The plan’s supporters argue that it would broaden the tax base, be progressive, decrease tax burdens, and start taxing wealth, while opponents argue that a national sales tax would be inherently regressive and would decrease tax burdens paid by high-income individuals. …
Economist William Gayle analyzed a National Sales Tax (though different from the FairTax in several aspects) and reported that the overall tax burden on middle-income Americans would increase while the tax burden on the very rich would drop. …
Many mainstream economists and tax experts believe consumption taxes, such as FairTax, would have a positive impact on economic growth, incentives for international business to locate to the U.S., and increased U.S. international competitiveness (border tax adjustment in global trade). The FairTax is expected to increase cost transparency for funding the federal government[X] and supporters believe it would have advantages with taxing illegal activity and illegal immigrants. The FairTax would be tax-free on mortgage interest (up to the basic interest rate as determined by the Federal Reserve) and donations; however, some law makers have concerns about losing social incentives on home ownership and charitable conditions. There is also concern about the impact to the income tax industry and the difficulty with the aggressive repeal of the Sixteenth Amendment, which would prevent Congress from introducing new income tax legislation in the future.[XI] …
In an open letter to the President, the Congress, and the American people, seventy-five economists, including Nobel Laureate Vernon L. Smith, stated that the FairTax would boost the United States economy. …GDP would increase almost 10.5% in the year after the FairTax goes into effect.[XII] In addition, the incentive to work would increase by as much as 20%, the economy’s capital stock would increase by 42%, labor supply by 4%, output by 12%, and real wage rate by 8%.[XIII] Further, studies of the FairTax at Boston University and Rice University suggest the FairTax will bring long-term interest rates down by as much as one third.[XIV] As falling tax compliance costs lower production costs, exports would increase by 26% initially and remain more than 13% above present levels. According to Professor Dale Jorgenson of Harvard University’s Economic Department, revenues to Social Security and Medicare would double as the size of the economy doubles within 15 years after passage of the FairTax. Opponents offer a study commissioned by the National Retail Federation in 2000 that found a national sales tax would bring a 3-year decline in the economy, a 4-year decline in employment and an 8-year decline in consumer spending. … The United States currently has the highest combined statutory corporate income tax rate among OECD countries. Bill Archer, former head of the House Ways and Means Committee, asked Princeton University Econometrics to survey 500 European and Asian companies regarding the impact on their business decisions if the United States enacted the FairTax. 400 of those companies stated they would build their next plant in the United States, and 100 companies said they would move their corporate headquarters to the United States. In addition, the U.S. is currently the only one of the 30 OECD countries with no border adjustment element in its tax system. Proponents state that because the FairTax is automatically border adjustable, the 17% competitive advantage, on average, of foreign producers would be eliminated, immediately boosting U.S. competitiveness overseas and at home.
If the FairTax bill were passed, permanent elimination of income taxation would not be guaranteed; the FairTax bill would repeal much of the existing tax code, but the Sixteenth Amendment would remain in place. The elimination of the possibility that income taxation would return (through a separate Congressional bill), requires a repeal of the Sixteenth Amendment to the United States Constitution along with expressly prohibiting an income tax. … Separate income taxes enforced by the State would be unaffected by the federal repeal. …enactment of a constitutional amendment must be approved by two thirds of each house of the Congress, and three-quarters of the individual U.S. states, it is possible that passage of the FairTax would simply add another taxation system. …
The Americans for Fair Taxation plan is to first pass the FairTax and then to focus grassroots efforts on HJR 16, that calls for the repeal of the Sixteenth Amendment. John Linder plans to include a sunset provision in H.R. 25 during the 111^th Congress that would repeal the Sixteenth Amendment within 5 years after the implementation of the FairTax or the FairTax goes away. …
During the transition, many or most of the employees of the IRS (105,978 in 2005) would face loss of employment. The Beacon Hill Institute estimate is that the federal government would be able to cut $8 billion from the IRS budget of $11.01 billion (in 2007), reducing the size of federal tax administration by 73%. In addition, income tax preparers (many seasonal), tax lawyers, CPAs, tax compliance staff in medium-to-large businesses, and software companies which sell tax preparation software .. could face significant drops, changes, or loss of employment. However, IRS testimony from 2004 stated that 45% of revenue agents and officers would become eligible for retirement in the following 5 years and there is concern about the loss of their work force as their hiring efforts struggle to keep pace with attrition. In addition, the IRS would not go completely out of commission until 3 years after the FairTax was enacted, providing employees time to find other employment. Proponents claim the projected 10.5% growth in the economy during the first year of the FairTax would provide plenty of new jobs to these workers … In the period of the FairTax was implemented, there could be a strong incentive for individuals to buy goods without the sales tax using credit. After the FairTax was in effect, the credit could be paid off using untaxed payroll. Opponents of the FairTax worry it could exacerbate an existing consumer debt problem. On the other hand, proponents of the FairTax note that this effect could also allow individuals to pay off their existing (pre-FairTax) debt quicker. …
FairTax supporters state that black market or illegal economic activity is largely untaxed under the current tax system. Economists estimate the underground economy in the United States to be between one and three trillion dollars annually. By imposing a sales tax, black market activity would be significantly taxed when proceeds from such activity are spent on legal consumption. For example, the sale of illegal narcotics would remain untaxed (instead of being guilty of income tax evasion, dealers would be guilty of failing to submit sales tax), but drug dealers would face taxation when they used drug proceeds to buy consumer goods such as food, clothing, and cars. By taxing this previously untaxed money, FairTax supporters state that the black market would be paying part of their share of what would otherwise be uncollected income and payroll taxes. …
The current income tax system fails to collect on a significant percentage of taxes. The IRS estimates twenty additional cents of taxes are owed on unreported income for every tax dollar collected. In 2001, the IRS estimated this shortfall to be over $312 billion. These figures do not include taxes lost on illicit sources of income, such as illegal drug dealing. … The number of tax collection pints would significantly reduce under the FairTax, as only retailers would file a tax return compared to every income earner. The FairTax would reduce the number of tax filers by about 80% (from 145 million to 25 million) and reduce the filing complexity to a simplified sales tax form. Research supports the claim that simplified tax systems lead to greater compliance. The International Monetary Fund found that Russia’s transition to a flat tax increased income reporting from 52% to 68% in one year. Similar results have occurred in Slovenia. … The federal government would be able to concentrate its entire tax enforcement efforts on a single tax – the FairTax. Retailers would receive ¼ of 1& as compensation for compliance costs. In addition, the overwhelming majority of purchases occur in major outlets, which are very unlikely to evade the FairTax and risk losing their business licenses. Economic figures show that 47% of all retail sales are made by just 688 businesses (“Big-Box retailers). 87% of retail sales are made by 193,000 businesses, which is 3.7% of U.S. businesses. …
The FairTax is a national tax, but can be administered by the states rather than a federal agency. This has a bearing on compliance, as the states’ own agencies could monitor and audit businesses within that state.

If the US government had listened to members of Congress in 1933, they would have not chosen the income tax system, but instead the sales tax system. Now, after all these decades, it is going to be more difficult to change the system – both by convincing those in Congress (and if they cannot be convinced, let’s hope that the voters use this against them when the vote in 2008) and working out the details involved. In addition, it is imperative that the 16^th Amendment be rescinded because of the reasons mentioned above.

It is disheartening to hear fellow Americans say things like “it will never happen” – not realizing that their attitude is what is slowing down reformation of our government and improving the lives of all American citizens. Unfortunately, this attitude toward civic affairs has become too frequent, and this is the main reason why we have members of Congress who get reelected election after election, yet do not perform their job as statesmen and stateswomen. Why should they? Some flowery words, some promises and personal character attacks against their political opponents is all that is needed to get votes from the general public – and it is time that the public shows them they are wrong. This coming election and all elections thereafter, let’s make it a point to do our homework, ignore the PR TV ads and the dirty political tactics, or whether or not one candidate is better looking than another, et cetera. Let’s base our votes on the individual – what they voted for in the past (proved actions) and not what they are saying now that they want your vote.

Together, we can make April 15^th just another day, improve our economic lives, and leave a better America for our children and their children.

[I] Former Representative Dick Armey is now involved in an organization called Freedom Works since 2003 that is dedicated to lower taxation, a fair tax system, less government, and more freedom.

[II] Commonly known as the Death Tax, effectively a tax upon items already taxed.

[III] Which means anything used/not new will not be subject to tax, for example if you sold a personally owned item to a buyer or from a garage sale, the tax would not be applicable.

[IV] An important specification in this bill to prevent illegal immigrants from getting the refund.

[V] And allow more of one’s paycheck to go to savings accounts and investments, instead of waiting the remainder of the year for a “refund”.

[VI] Meaning, the more one makes in income the more one pays taxes, because the wealthier purchase more and items at high-cost value.

[VII] Imagine having savings accounts and investments where the profit is actually YOURS, without the government sticking their fingers into it.

[VIII] Which increases employment and reduces the unemployment rate.

[IX] Reason being is that the “flat tax” proposal will keep the same intrusive and unfair income tax system, that is theoretically a “direct tax”, and therefore unconstitutional; although the Supreme Court of the United States has failed, along with issues concerning the Second Amendment being ignored by States of the Union (including Wisconsin) in their abstinence of their duties as prescribed by constitutional mandate.

[X] Americans will actually SEE where their tax funding is going and the total cost of government. Personally, the 23% tax rate should be the first year, with a downward plunge each year by 1% until it reaches either 20% or 15%. In addition, the tax rate should not be allowed to increase or no new taxes introduced without a two-thirds majority vote of Congress; thereby making it difficult for government to increase taxes and provide a further incentive to watch their budgeting.

[XI] Why should the American people or the government be concerned with the parasitic business entities that have charged Americans to do their income tax paperwork in a system that is so complex that Americans are forced to pay for income tax preparation service businesses? Accountants will still be needed because of the sales tax program of FairTax, and therefore, will still have their jobs. IRS will be reduced to an insignificant government agency, which many Americans like that idea above all. And mentioning that, the FairTax will eliminate the problem of tax evasion that is present in the income tax system we have now. Except for the statistical requirements of a census, it is not the government’s concern in relation to our incomes and has no right taking it before we have the opportunity to spend it according to our desires and needs.

[XII] Nations that use a system like the FairTax, some of them being poor former satellite nations of the USSR, have improved their economy greatly – one as high as 13.7%.

[XIII] In addition, when you apply for a loan, the business entity will consider what you actually bring home, instead of the gross amount before taxes are taken out.

[XIV] This is good news because of the recent panic over lack of new home sales and new mortgages.