Questions about the FairTax plan

Today we continue to address some of the more common misinformation and misconceptions regarding the FairTax plan. Where does all this misinformation come from and why do people continue to spread it without confirmation or even question? Perhaps the real question should be why would anyone want to continue to disseminate erroneous information when it can be so easily checked out.

“The Fair Tax eliminates various government services, Social Security, Medicare, Unemployment, etc.”

The FairTax plan has nothing to do with government services. Not only does it not eliminate Social Security, Medicare, Unemployment, etc. or any other of our current entitlement programs it does in fact fully fund these programs. The only thing that changes under the FairTax plan is the manner in which federal taxes are collected. Instead of paying taxes on every dollar we earn, we pay taxes on the dollars we spend. The FairTax is intended to be revenue neutral, meaning that it simply replaces dollar for dollar our current federal tax revenue. It just does it in a simple, fair and transparent manner.

So, under the FairTax plan Granny keeps getting her Social Security check every month and she continues to enjoy the protection of Medicare. The only change most of us will see is that we no longer have to spend hours or days preparing our income tax return because, whoops, there is no tax on income. We no longer have to save every receipt in hopes of a tax deduction. Our accountant is free to actually help us plan our financial future rather than spending most of their highly paid time on tax preparation. And, April 15 becomes just another beautiful Spring day.

“Anyone near a Canadian or Mexican border will go there to buy everything.”

This is commonly known as the “Over the border” argument.

The prices we are currently paying for goods and services include approximately 22% in embedded taxes. These are the income taxes that must be paid by every hand that touches these products and services from the producer to the consumer. Under the FairTax plan these embedded taxes no longer exist so the cost of production drops by approximately 22%. Then, the FairTax, of 23%, is added at the final retail consumer level bringing the cost of the product or service back to its original price. If the prices are going to remain virtually the same why would anyone race across the border to purchase goods and services? And, if they would, why aren’t they doing it now?

“People will take all their money out of the country.”

Again, this logic is assbackwards. People and companies have taken their money out of the country because of our current income tax system. There are billions, probably trillions, of dollars belonging to American citizens and companies sitting in banks all over the world because under our current system it would be worth half or less simply by bringing it back into the country. Under the FairTax plan there would be no tax or penalty on that money until and unless it is spent at the retail level. So, our citizens and our companies would instead race to bring it back into America and put it to work creating jobs and earning even more money.

“50 million tourists can’t spend enough to support 300 million citizens.”

Arguably, the greatest benefit of the FairTax plan is that it increases the tax base. The fact that millions of tourists will be contributing to our federal tax coffers is a bonus in increasing that tax base. Tourist spending is not intended to replace taxpayer contributions, but to add to it. By increasing the number of people paying taxes the tax burden is spread more evenly and lightly upon all, like a fine layer of smooth peanut butter on bread.

“If new homes are taxed but exisiting homes are not, people will stop buying and building new homes.”

An obvious assumption but a little research shows why this would not happen. Yes, the FairTax will be added to the final price of a new home. But, remember that the FairTax eliminates all the embedded taxes associated with the production of that home. And, existing home prices still contain those embedded tax costs. Take this combined with the fact that under the FairTax capital gains taxes are no longer a concern when selling a home, and that the dollars used to purchase a home have not been previously taxed and there is actually no incentive to buy an existing home rather than a new one. And finally, there is a finite number of existing homes. As people are better enabled to save the down payment and more people move toward home ownership the supply of existing homes will naturally decrease and as new homes are more affordable due to the lack of embedded taxes there will be an equilibrium reached between the two.

One final thought: Change is a fearful thing and the idea of the FairTax plan seems like a big change. In reality, it’s not. It merely changes the manner in which we pay and collect taxes. Those who truly should, and do, fear the FairTax plan are those in political power. The FairTax plan returns the power and control to the people of this country. Let us not forget that less than a hundred years ago we had no tax on income in this country. The income tax is a relatively modern innovation that simply does not work. It provides for government bureaucracies to control the purse strings of the nation, and thus to control the people. The FairTax plan reverses this situation and places the power of the purse with the people.

Cordially yours,

Tim

Transitioning from Income Tax to FairTax

What will tax season be like for the average Joe or Jolene? Well, to begin with April 15 will be just another beautiful Spring day. There will be no income tax filing, so there will be no tax preparation. There will be no need to keep all your receipts. You’ll never again have to ask, “How many years do I have to keep all this stuff?” Your accountant will be able to actually earn his fees by helping you manage your money, rather than by doing your taxes. In short, there will be no tax season.

The transition from an income tax to the FairTax, for the average consumer, will hardly be noticed. The collection of the tax revenue lies with the retail and service businesses, and most of the infrastructure is already in place for collecting sales taxes. The prices of goods and services will remain about the same, and in some cases may even decline as embedded taxes are removed from the manufacturing, transportation and supply processes.

Every year we lose billions of dollars in productivity just in the time it takes us to prepare and file our tax returns. This is an immediate benefit of implementing the FairTax. Will it be easy to get it done? No. Is it worth it? Absolutely.