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The Defects in the FairTax Plan
The main defects in the FairTax plan are: No tax cuts (except for the estate tax cut and gift tax cut for the wealthy), cancellation of the home mortgage interest deduction, charging taxes on top of health care costs, increasing the number of tax collectors, taxing retirement savings twice, and making every day tax day. Other than that, it's still needlessly complicated, does not eliminate state and local taxes, does not account for more than a trillion dollars of lost revenue via the estate and gift tax cuts for the wealthy - which will be made up by someone - most likely the middle class.
The FairTax authors claim the tax is voluntary. The fact is that there is no way to avoid paying the tax - you have to eat! - and all food is taxed under the FairTax. Using this logic our present system is also voluntary.
FairTax supporters claim that the bill would repeal of the 16th Amendment. However, all it does is repeal a few sections of the tax code. The bill only suggests that the 16th amendment to the United States Constitution should be repealed. To repeal the 16th Amendment would require a constitutional amendment, the approval of congress and approval by three-fourths of the states. Without the repeal of the 16th Amendment, nothing will prevent an income tax from being imposed again after the FairTax is in place.
Although the FairTax would eliminate individual income tax returns, the FairTax turns every business (from Ebay sellers to farmers markets, and up) into a tax collectors. Every business no matter how small and every Internet business will have to collect taxes for the federal government. Every doctor and lawyer will now have to charge sales tax. The bill does nothing to eliminate other taxes. The FairTax is on top of existing state sales taxes. That is on top of the sales tax and local taxes that many cities and counties. That is on top of gas taxes, cigarette taxes, alcohol taxes, and other sin taxes. In addition, there is no part of the bill that limits how high congress can increase the national sales tax.
A major deception is the tiny prebate that wouldn't even cover a month's worth of food, let alone huge energy costs, gas for heat, electricity, and health care. The idea that $187 a month will cover the tax on the basic needs of an average individual is the biggest pile of bullshit in this entire plan. Most people spend more than that just on gas for their car. That amount of money wouldn't cover an office visit to a doctor. The entire prebate thing is a lie.
Even worse, as a sales tax, the FairTax taxes everything you buy and every service you use so that every day is tax day!
Worst of all, it taxes money that you worked for and earned. Gifts, estates, and basically any welfare or free money that you didn't earn or work for is tax free. FairTax supporter will try to tell you that estates, capital gains, and gifts are not "loopholes" to this tax. They are undeniably new income to the person receiving it no matter who had the wealth before the receiver did. There's no taxation without respiration. These unfair major loopholes costs will the government $700 billion a year.
To top it all off the FairTax may only have a limited possible lifespan. Because only new goods are taxable, all land, all property, buildings, and all houses will eventually all be declared "used". Buildings, houses, and especially land, have extremely long useful lives. There is really no need to buy new land if you just keep passing it from one generation to the next tax-free. At some point all houses, buildings and land will be considered "used" and will never be taxed again. This will cause a huge drop in the revenue of the government and will force modification to make up for lost dollars.
To repeat what we said before. The fact is that the FairTax is an extreme burden for the poor. Because they have to spend 100 percent of what they make to survive, then they are literally in the 100% tax bracket because all of their earnings are taxed. The FairTax is a penalty for the middle-class because they spend 80 percent of what they make in consumption, they are taxed on 80 percent of their income so they are literally in the 80 percent tax bracket. The FairTax is a nuisance for the rich. Since they save and invest most of what they get, and can invest tax-free, and transfer wealth tax-free. They only spend 5 percent on consumption so they are taxed on only 5 percent of their income and are literally in the 5% tax bracket. That doesn't sound fair to me.
Most progressives and intellectuals see the FairTax as a smoke screen for cutting the estate tax, gift tax, and capital gains taxes. All the manipulation of the tax code without reform, without balancing the budget, or without cutting taxes equally, is a nothing more than a cleverly disguised trick to set the ignorant listeners of hate radio to do the bidding of a handful of greedy billionaires.
We think that the real issue isn't reforming the tax plan. The real issue is controlling spending. Many Democrats, Republicans, and Libertarians with real fiscal sense know this to be true. The root of the problem is that government wastes nearly all the money it gets and is allowed to borrow and tax for more. We need to have a balanced budget where no extra spending is allowed. People should not have to pay for government they don't need and don't use. People should get something of value for their money. People should not have to be at the mercy of billionaires who didn't earn their inherited money, and who do everything they can to manipulate politics to favor themselves and their financial interests - we need to get corporate interests out of government.
The purpose of government is simple. The founding fathers spelled it out in the Constitution as follows: We the People of the United States, in order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. There is nothing here about helping the stock market, promoting business, giving tax breaks to foreigners, giving old money billionaires a free ride. There is nothing about offensive weapons or invading other countries - only defense. What it does include is a fair justice system, a common defense system, and a general welfare system - nothing else! - for the express purpose of the happiness and union of the American people.
Presented below are alternatives to the FairTax Plan. The Representative Tax Plan is a bandage for our current tax code. The No-Tax Plan is a revolutionary replacement for the tax code that will cut taxes for everyone that works for their money and every business that has American workers. There is no tax whatsoever - you can spend all you earn on whatever you want and pay no taxes for your entire life! The plan would bring in enough money so that state and local taxes could also be eliminated. There would be enough money the first year to pay off the national debt! Healthcare and college could be free to all Americans.
The No-Tax Plan
How about a plan where everything you earn is tax free - period. No income taxes, no sales taxes, no business taxes, no fees or tariffs. As long as you earned the money by using your muscles or your brain you get to keep 100 percent, and your can do or buy anything you want with it without taxes. Get your entire paycheck, spend or save without any taxes, fees, tariffs, or anything that would increase the price of good or services. Absolutely no business taxes as long as all your employees work in America.
That's not the half of it. There will be so much money coming into the treasury that every American can have 100 percent free health care, free prescription drugs, free surgeries, free dental and free optical, and even free plastic surgery! You can have free education, free college, free classes, free certifications. There will be enough money in the first year to pay off the national debt, fund the military at current levels, fix all the roads and bridges, and help every poor person to get off welfare.
So what's the catch? Money you didn't earn or work for is taxed at 50 percent - no exceptions. Why? Because it's welfare and that is un-American. Money that you get for free is taxed. This includes inheritance, gifts, lottery winnings, gambling winnings, interest income, income from stocks, bonds, etc. Companies that outsource labor will have to pay a large tax. (because their profit wasn't worked for or earned by Americans) Privately held corporations must convert to publicly held corporations or be liquidated when the owner dies. It's a very simple concept. Retirement funds and 401K plans are tax free because you earned them and the yearly contributions are limited.
Where does all the money come from? Currently just the top few percent of the population owns or controls 70 percent of the wealth. Notice I said wealth and not income. Income is a fanciful term dreamed up by tax lawyers and tax accountants that has virtually no basis in reality. A billionaire can, and sometimes does, show zero income on his tax return. (If you own the company you can reward yourself in many other ways than giving yourself a high salary). Wealth, on the other hand, is net worth. All the things of value that you own like property, houses, boats, stocks, bonds, investments, etc. These are things that can not be easily removed from America or hidden like income can. They can be accounted for and seized if necessary. There is so much wealth in America that taxing wealth could fix all of Americas debt problems in one tax year. While the FairTax billionaires whine about how people hide money outside the country, with the No-Tax Plan that all goes away because real estate can't be moved, stocks and bonds are registered, and banks won't lend people money without collateral.
This would eliminate all tax-free shelters, trusts, foundations, and would provide incentives to work hard and be productive. Business would have no taxes and not need to worry about deductions or liabilities. As long as they provide a product or service using American labor they will never pay a red cent. No more sin taxes, luxury taxes, property taxes, cigarette taxes, or any other taxes on money you worked for and earned. Foreigners would have to move themselves and their wealth to America to benefit.
The FairTax is more like Communism. Everyone is supposed to be equal but, in reality, there is a ruling class consisting of wealthy old money heirs who contribute nothing to society. The No-Tax plan is more like what our founding fathers intended - people who work hard get to keep and spend all they work for tax free.
Our current tax code is a lot like an oligarchy. Privately held companies are passed to heirs of royal blood like a monarchy. It's almost as if the United States has many little kingdoms within it and these sons and daughters of self made people are royalty. Most people can respect an entrepreneur, a guy that risks all to start a business, and becomes successful. But nobody respects the boss's son taking over a company - someone who didn't work for the job, didn't sacrifice for the job, or earn the job by deeds instead of having a monopoly on royal blood. When money gets passed on like this the entire capitalist work ethic suffers - innovation, incentive to work hard, earn a living, take risks, and start businesses all suffers. Companies run by heirs are more likely to get involved in the political processes than keep their mind on innovation and productivity. They run for office to change laws in their favor, rather than coming up with new and better ways to do business. They try to kill competition rather than put more people to work. They outsource rather than evolve. They litigate rather than invent. That's why the No-Tax plan is a tax on unearned income and ill-gotten wealth.
We are currently looking for a congressional sponsor to help us get the No-Tax plan into a bill that can be introduced to Congress.
The Pro-Family Flat Tax Plan
All basic necessities of life are completely tax free up to any amount (food, rent/mortgage, utilities, healthcare). Then one tax rate for everyone above that amount - 35 percent. No deductions for anything else. Same tax rate for corporations. The estate tax, gift tax, and capital gains taxes are eliminated -- Instead, all incoming money as estates or property will be treated as income -- which it is.
Rich people can have one expensive house, and eat expensive food, and pay no taxes on them, and poor people can make the most of their meager dollars getting nutritious meals instead of cheap starchy food or fast food.
There is a 35 percent tariff to retailers on all imported goods and services not provided by or manufactured by members of American families.
The European Dual Tax Plan
All of Europe, Canada, Japan, Singapore, and Australia currently pay taxes under a dual tax plan that is one part Income Tax and one part Value-Added Tax.
The way it works is first you exempt all households under a certain amount from paying income taxes; say $150,000 per year. This will eliminate the need for about 90 percent of the country from having to file a return. Anyone making over that amount will pay a 30 percent income tax. Then you create a Value-Added Tax that is locked in a low rates for necessities (5%) and higher rates for luxuries (15%) that can go up or down. The value added tax is paid at each stage of production, and then refunded to the manufacturers when the finished product is sold. For example, for a luxury car, the manufacturer might pay $500 in taxes for the steel used to build the car, the car dealer might pay $1000 in taxes before he sells it. However, when the car is sold, the full tax is collected ($2500) and then the government sends $1000 back to the dealer and $500 back to the manufacturer.
It may sound complex but it completely prevents cheating. Unlike other flat taxes (FairTax Plan) where the salesman could pocket the sales tax and not report it, there is a documented existing chain of people who need their money back when the car is sold so no one can cheat without the others knowing.
Under this system all inheritance is just treated as income and taxed accordingly and fairly.
The Representative Tax Plan
Most people hate taxes because they have no say in where their money is being spent. Conservatives don't want their money spent on stem cell research, offensive art, welfare programs, public television, endangered species protection, etc. Liberals don't want their money spent on unjustified wars, ridiculous government contracts, tax breaks for religious groups, organizations that spy on American people etc. Even if we can't pass a revolutionary new tax plan we can at least give the American people a say in where their money goes.
We need a law that says:
1. Everyone who pays taxes is allowed to determine where those tax dollars go. When you fill out your tax return there should be a choice of 20 areas of the government to choose from on your tax return form. You simply enter the percentage of where you want your money to go into each of the areas. If you want to put all your money into defense then you can. If you want to put all your money into social programs you can do that too. There should even be an area on the form to put tax money toward the national debt.
2. The government can not borrow money - ever! The budget must be balanced and must be according to the budgets set above in part #1. No borrowing from other budgets and no emergency borrowing - even in war time. If a war is declared then an automatic WAR TAX should kick in. If a WAR is declared on terrorism then an automatic TERRORISM TAX automatically kicks in. If the president declares a WAR ON DRUGS then an automatic WAR ON DRUGS TAX kicks in. When people decide that the war or emergency is over then the tax goes away. This way politicians will think real hard about starting an unjust war or declaring a virtual war, and war will always be a last resort because of the tax attached to it.
This would solve our lobbying problem. It would make sure that tax money is going for what the taxpayer wants and nothing else.
Some believe in minimalist government, that you should only pay for the government you use and nothing more. This tax system would be built on fees. There would be fees to drive on roads to support their construction. If your business in a foreign land is being targeted by terrorists you pay the military to defend your assets. You subscribe to police services, inspection services, and legal services. Government would need no president or congress because everything was based on the fees received.