Posted by earthsheltergal on 07/24/10 11:18 AM
This article was posted by Pat & Shirley Miketinac on
the Website Campaign for Liberty....Great work !
Thnx,Bob
When you ask most folks what they know about the Fair Tax, if they know anything at all, they'll be happy to tell you that it's a national sales tax capping our taxes at 23%. They expect that when they will go to a check-out line, they'll take an additional 23 cents out of their pockets to pay for a $1.00 item. Their eyes light up with joy when they tell you how it repeals the 16th Amendment, abolishing income tax and the IRS. They believe there will be no more audits. They believe We the People will be in control of the spending in Congress.
None, I repeat, none of the above notions are true. These are only wisps of facts which all bear closer scrutiny. If you visit the Fair Tax website, there is a link to the actual seventy-plus page bill. I highly recommend that you read it. They also have Fundamentals, a Thumbnail Sketch, FAQ and other documents where they present their explanations. These documents need to be reconciled and verified with the actual bill. The following is our search for the truth.
At a Weeki Wachee Swampfest a few years back, in Hernando County, Florida, a personable group of folks had a booth emblazoned with FAIR TAX. Thinking this sounded like a great idea, my husband and I ambled over, read brochures, and waited our turn to ask some questions. Sounded good. What's not to like? We get rid of the IRS and income tax. We get a 23% sales tax instead. Business will flourish, because they will be exempt from embedded taxes (20%), which they would naturally pass along to the consumer.
Sounds too good to be true? Well it is. I heard what I wanted to hear. We are all so desperate to lower our tax burden and get some control of the rampant spending, that we deceive ourselves. Machiavelli noted that
"Men are so simple, and so subject to present necessities that he who seeks to deceive will always find someone, who will allow himself to be deceived."
No responsible citizen should back a piece of legislation without reading it and getting all the facts straight. Haven't we criticized our Congressmen for that very thing? Most folks who support the bill have not read it. And that doesn't mean just the book! You may find discrepancies with the way the actual bill is portrayed in other literature. Now's the time. Read it! In talking to people who have read the Fair Tax book, here are some of their common misconceptions.
Misconception #1 That the Fair Tax will be a 23% sales tax at the register
Misconception #2 That the Fair Tax will be permanently capped at 23%
Misconception #3 That "Revenue Neutral" is a "fair" tax
Misconception #4 That businesses, services and corporations will automatically pass along savings to We the People and that they are supportive of the Fair Tax
Misconception #5 That the Fair Tax Bill abolishes the IRS and repeals the 16th amendment
Misconception #6 That under the Fair Tax, we will have fewer taxes, less paperwork and no IRS-style persecution
Misconception #7 That under the Fair Tax, everyone with a valid Social Security card, will get their own personal prebate check
Misconception #1 That the Fair Tax will be a 23% sales tax at the register
The actual Fair Tax at the register will be 30% of the item price. That's right, 30%. If the item is taxable under state sales tax, then you will pay about 37% at the register. They tell you so on their own Fair Tax website, but we don't always listen. Page one and two of the Fair Tax Thumbnail Sketch, state that the sales tax is charged just like state sales tax. "The amount you pay to fund the government is totally visible." It will be on your register receipt. On page two, under revenue neutrality, they tell you that the Fair Tax will be-
"about 30 percent at the cash register when they elect to buy new goods or services for their own personal consumption."
Under the FAQ section, it also confirms this:
"What is the rate of the sales tax at the retail counter? " (answer) "30%"
The actual Fair Tax is 30%. They add this to the cost of the item first, to create the gross amount. The Fair Tax is 23% of the gross. Confusing? I should say so. More simplistically, under the Fair Tax, if you go to a dollar store to buy a $1.00 bag of chips, and dig 23 cents out of your pocket, you'll be 7 cents short. The actual tax at the register will be 30 %, so you'll need $1.30. (Note that all food which formerly was not taxed will now be taxed.) If you purchase a $100 prescription, you will owe the pharmacy $130. If you purchase a $25,000 new car, the Fair Tax paid to the sales department will be $7,500. The state sales tax will be about $1,750 for a total of $34,250. Just to confuse the issue further, what if the state gets the bright idea to tax on the gross or simply increase the sales tax, because their revenue may be down thanks to the supposed falling prices? Then it could cost $34,775.
In the fairtax.org "Fundamentals" example, the tax on a new $230,000 house will be $69,000. I'm no mathematician, but $69,000 is 30% of $230,000. If you add the tax to the price, you get $299,000, and the tax is 23% of that total, tax inclusive. The fact remains that the tax amount is 30% of the price of the house. Lenders that we called were totally unaware of the Fair Tax and would not take a stand as to including it in the mortgage. If they won't, this and any tax on a large ticket item, like a car , will have to be paid up front, out of pocket, And even though you'll have more pretax dollars on hand, that amount varies significantly with your income. If you're wealthy enough to have the cash on hand, fine, but if not, you may have to save up a lot of monthly "prebates", but that's another misconception for later.
We have spent so much time on these examples, because even people who have read The Fair Tax book cling stubbornly to this misconception. At a recent conservative political meeting, teeming with knowledgeable people, we could not find a single one who was aware that the Fair Tax was actually 30% of the retail price at the register and not 23%. Many of these people had even read the book!
Another consideration, is what this may do to the already faltering new home and auto market. If you can purchase a nearly identical used home minus that $69,000 in taxes, why buy a new one? Are you confident the price of a new home will fall enough to make the tax worthwhile? If you can buy a year-old used car for $7,500 less in taxes, why not? This would be a boon for the used market, but will it help our manufacturing and construction base in America enough?
The rates are spelled out in Chapter 1, Section 101 of the bill, under Imposition of Tax.
(b) Rate
(1) For 2011, 23% of gross payments for the taxable property or service...
(2) For years after 2011, the rate will be the combined tax rate percentages as defined in paragraph 3 of gross payments for the taxable property or service.
That rate is the combination of General Revenue, Old -age, Survivors and Disability and Hospital Insurance Rates (all set by the federal government) which is currently 30.2% as listed in Misconception #2. If they follow the same formula, does this mean that in the second year, we start at 43% at the register? As those rates change, so will the total tax.
Misconception #2 That the Fair Tax will be permanently
capped at 23%
Now it should be more clear, that that 23% is really 30% at the register. But, it only starts at 30%. There is no cap on the Fair Tax, after the first year, so in that regard, it is no better at limiting big government spending than the income and payroll taxes. By their own examples on fairtax.org, they tell you that government funding and the Fair Tax is based on three factors:
1. The General Revenue Rate (currently 14.91%)
2. The Old-age, Survivors and Disability Rate (currently 12.4%)
3. The Hospital Insurance Rate (currently 2.9%)
which adds up to 30.2%. These are the numbers that the second and subsequent year taxes will be based on, comparable to current income and payroll tax rates. Your employer currently pays half of #2 and #3. As these rates increase, so will your "Fair Tax", just like with income and payroll taxes. In the Frequently Asked Questions on fairtax.org, they tell you that...
"If the government gets larger, higher taxes will be required."
When in the past century have you ever heard of the Federal government getting smaller, especially now in the current financial crisis in which we are embroiled? In essence, we would be giving the Federal government, who determines those three factors, carte blanche to write their own tax ticket, with our approval. Granted, they control those factors now anyway, but the point being, that we're still not getting at the vital issue of slowing and reducing the out-of-control spending in Washington. Repeat, there is no cap on the Fair Tax. The Federal government, through the now bankrupt Social Security Administration and the Congress, will still determine what We the People pay, and pay and pay. The whole idea should be to stop spending, not fuel it. There's a roaring inferno of spending going on in Washington right now and all we would be doing is providing a broader base of taxes to throw more fuel on the fire.
Another anomaly, is the revenue allocation of the tax haul in the first year. Notice the three government funding factors above. General Revenue is about half of the tax rate. However,
in Chapter 9, Section 904, c , Revenue Allocation for 2011 is:
(1) 64.83% to General Revenue
(2) 27.43% to Old-age, Survivors, Disability Insurance Trust
(3) 7.74% to Hospital Insurance and Federal Supplementary Insurance
What's wrong with this picture? Prior to this time, general revenue was only half of the total. Now it's two-thirds. How did this change occur? Is it because the tax base is so broad with most all goods and services being taxed, that we can afford to throw more fuel on the spending spree in Washington, or is it something else? Is there some other source of funding in the works for Social Security? The following is a question under the Frequently Asked Questions: "How does the Fair Tax affect Social Security reform?" An example states that "if a mandatory private savings program is implemented where people must save ten percent of their income and Social Security benefits are curtailed..." If this occurs, is this why you'll still need the 16th amendment to coexist with the Fair Tax ? Then more money could be placed in the general revenue, because We the People could once again be funding Social Security through new income taxes and in addition, paying a large national sales tax. Much of this paragraph is conjecture, but it shows how little we really understand about where this could lead.
Misconception #3 That "Revenue Neutral" is an acceptable tax
According to the Fair Tax handouts, the Fair Tax "Raises the same amount of revenue for the federal government (revenue neutral)." Why would we want to give the Federal government the same amount plus the power to raise it anytime? Isn't excessive spending the problem? This does not put We the People in control, as is suggested. To misquote Shakespeare, "A tax by any other name would still be a burden."
But Congressman Ron Paul does have an alternative plan. He has always been in favor of abolishing the income tax through repeal of the 16th amendment. But where he differs from the Fair Tax, is that he doesn't want to replace it with a revenue-neutral national sales tax. He wants to, get this............... have no income tax at all and no replacement tax. He says that the Federal government raises 40% of taxes through income, and would still have a whopping 60% on a host of other taxes. It would be comparable to our 1997 budget. Isn't that what we really want? Don't we really want to stop the insane spending? So when Fair Tax promoters shrug their shoulders and say "what else can we do? ", tell them about Ron Paul's plan.
We believe we need to put Ron Paul in the Presidency, and elect a supportive conservative Congress to get things done. Thomas Jefferson faced a similar dilemma when he took office in 1801. Alexander Hamilton and the Federalists had taxed the American people far worse than the British. There were taxes on whiskey, snuff, sugar, carriages, land, slaves... just to name a few. Much of these exorbitant taxes levied, wound up in speculators and congressmen's pockets by the terrible scam perpetrated on holders of government I.O.U.s. These taxes were also to finance Hamilton's huge, empire-building army. But that's another tale in history. The important thing is that Jefferson, among other things, promised to remove all these exorbitant taxes. With the help of a libertarian-minded Congress, he did just that, returning us to fiscal sanity and a constitutionally sound import tax only. History could repeat itself if only we dare to believe!
If we're going to fight, let's fight for something really worth winning. Do you think Samuel Adams would have settled for a replacement tax? Now Mr. Adams, you don't like that nasty old Board of Customs Commission and the Writs of Assistance they use to collect taxes. So we'll trade that in for a revenue neutral tax on food, clothing, building materials, your horse, hay for your horse, your new house, and any other goods you can name, all your services like the blacksmith, the cobbler, your housekeeper, just to name a few. We'll send a single prebate to your domicile monthly, by pony express. If you don't fill out your "Qualified Family" form correctly, or forward your share of sales taxes collected from the family brewery, we'll send out the Problem Resolution Officer armed with warrantless Taxpayer Assistance Orders to enforce it. You may be audited and do jail time. Oh, and by the way, we'll still continue to tax you at whatever rate the British government needs, in case it gets bigger. What do you think he would say? It was the principle of the thing and it was the taxes. We need to think out of the box. We need to dare to dream like our Founding Fathers. Let's get it right!
Misconception #4 That businesses, services and corporations, will automatically pass along savings to We the People and that they are supportive of the Fair Tax
Embedded taxes. Mysterious, magical, embedded taxes. Do you know what they are, how much they are or how much they would affect sales prices? No one does. Since businesses pay no income taxes or compliance costs under the Fair Tax, the theory goes that retail prices will be approximately 20% lower because of business and corporate savings ( according to Dr. Dale Jorgenson of Harvard University, Fair Tax Thumbnail Sketch, page 1, who, by the way, does not support the Fair Tax). We don't know when you last had to deal with a "bean counter", but their job is to squeeze every penny from an existing business and express it to corporate headquarters. A few years ago, CEO salaries were on average forty times that of a worker. Now their salaries are up to five hundred times or more than that of an average worker. They're constantly looking for new sources of revenue to fuel their bonuses too. Have corporations and businesses, banks and insurance companies, suddenly become magnanimous and caring? All you're assured of under the Fair tax is how much you'll have to pay, but you have no guarantee at all that prices will come down. All we would have are nebulous promises from some of the same folks who got us into this financial fiasco in the first place.
Remember, there are no guarantees of this much touted savings. Business takes little risk under the Fair Tax, but the same cannot be said for We the People. To truly protect the consumer, a new section needs to be added to the Fair Tax bill. Let's call it section 1001. The subject would be a guarantee of lowered prices to the consumer by removal of the embedded taxes from the price of goods and services. All businesses and corporations would be required to file a plan to show these reductions to become a "Qualified Company". If they do not comply, there would be appropriate penalties by law. Just add it to the Fair Tax Bill Section 504, which contains a host of other penalties, fines and jail time. Section 602(a),states that the Sales Tax Administering Authority may levy and seize property, garnish wages or salary and file liens to collect taxes. You just thought the IRS was gone. It may have just changed its name to STAA, the Sales Tax Administering Authority. Section 501(d) encourages you to inform on businesses, family and neighbors. Section 501(h) offers you a cash reward for doing so. So if you have domestic help, such as a nanny, a caregiver, or a maid in your household, you become a qualified employer. If you fail to file a monthly report with a 30% payment (out of your pocket, not the worker's) your neighbor or relative may turn you in for the reward. Who knows with these economic hard times, I expect some intrepid entrepreneurs will make a business of it. Section 507(a) gives summons power to STAA, and (b) gives examination and audit power to examine business books, papers, records or other data. How many of these powers are Constitutional?
In an e-mail from Mark Gupton, Florida Fair Tax Managing Director, he states that:
"...big business has not become interested enough to help advance the plan. When both the national Chamber of Commerce and The National Retail Federation oppose FT, it becomes a difficult hurdle. By the way, even Dr. Jorgenson is not a proponent of FT. He has his own idea, but, as usual, he does not have legislation nor a grassroots organization nor any educational program to promote his plan...."
So are We the People, such as the Tea Party movement, and other political groups, being used as the mechanism to recharge this stalled bill? If so, we demand to have the truth, the whole truth. If business isn't cooperating, what makes anyone think they'll cooperate after it's passage? We have no assurance that competition would keep prices lower after embedded taxes are removed, or that business won't find other uses for their new-found windfall.
Maybe big business isn't interested because of the additional bureaucracy involved. Large businesses and services would have the extra burden of maintaining a mandatory separate bank account and must post a sizeable bond ($100,000), to ensure payment to the government. They must also send in separate reports and payments weekly. Small businesses and qualified employers must make monthly reports and payments. If you barter, you must turn in fair market value. States must send the taxes to the federal government every five days or face stiff penalties. Big Brother is still watching you.
Misconception #5 That the Fair Tax Bill abolishes the IRS and repeals the 16th amendment
Most people think the Fair Tax Bill abolishes the IRS and repeals the 16th amendment. Their website introduction actually says "Makes taxation of income unconstitutional by repealing the 16th amendment". In reality, only a constitutional amendment can repeal the 16th, and that effort would be launched concurrently but separately from the Fair Tax Bill. One is not dependent on the other. The government will get seven years to try to repeal the 16th, at which time if they are not successful, the Fair Tax will sunset. On the FAQ section at fairtax.org, it clearly states:
"Is there any provision in the Fair Tax bill to prevent both an income tax and a sales tax?" "The short answer is that there is no provision in the Fair Tax bill (HR25) that would prevent having a national sales tax and an income tax."
Is there a precedent in our history for this? Absolutely! Have you ever wondered how in the world the 16th amendment ever passed in the first place? In 1913, a big public relations campaign worked to convince the American people that tariffs (import taxes) were benefiting big business and hurting the consumer at the register because they had to pay more for imported goods. A tax on incomes, they argued, would force the rich to pay their fair share. From Ron Paul's Revolution a Manifesto, "And that's just how the income tax was pitched to the people: tax relief for you, in the form of lower tariffs, and a tax increase for the rich." People were told not to worry because it's only a 1% tax and only the richest of the rich will ever pay it. You know the rest of that government tale. But you would think the Federal government would have kept its promise not to reinstate import taxes. By the 1920's they were raised again anyway, so the people got the worst of both worlds. We need to learn from history or we're doomed to repeat it.
When you hear candidates questioning The Fair Tax, don't be so hasty to criticize. Maybe they have reason to be cautious. Maybe they've studied their history and know that we've been fooled before. Maybe they've actually scrutinized the Fair Tax bill for themselves.
Remember, there is nothing in the Fair tax Bill itself forcing the repeal of the 16th amendment. And our government has proven time and time again, that they have a way of legislating around it. Many folks would be far more comfortable having the 16th abolished first, or at least concurrently with the initial date of the Fair Tax.
Parts of the IRS code will still be in existence too. After all, the Fair Tax makes reference to many parts of it. It will only repeal certain portions of the tax code. The IRS would still be around for a few years to collect back taxes and tidy up business, then we'll have only STAA, the Sales Tax Administering Authority to administer the remaining portions of the IRS code.
Misconception # 6 Under the Fair Tax, we will have fewer taxes, less paperwork and no IRS-style persecution
Under the Fair Tax, it will be difficult to find anything except businesses, non-profit organizations, investments, and estates that won't be taxed. You'll pay 30% additional at the counter on food, clothing, prescriptions, car repairs, home insurance, health insurance, college tuition, safety deposit boxes, brokerage fees, lawyer services, doctors fees, dental bills, barber services, lawn services, domestic services (which you have to file and pay the 30% yourself), airline tickets, bus tickets, cruises, lottery tickets and gaming, federal and state government purchases, gasoline, boarding stables, feed stores, charter boat tours, attraction tickets, telephone bills, electric bills, internet services, ............. And just about any other good or service you can imagine. We would encourage each "Qualified Family" to investigate their own circumstances and expenditures against current income tax payments to get a clearer picture.
Many folks with businesses small and large, will become first-time tax collectors. That always involves bureaucracy. We may just be trading one type of paperwork for another type of paperwork. Also, every "Qualified Family" who would like to receive this prebate, must fill out the paperwork. There are seven items, including names, social security numbers, the name of the person or persons in the household to whom the prebate should be paid, certification of lawful residence, that no members are incarcerated, and certification that all family members are listed, with an address. There are no details as to what will be required for certification. We suppose STAA will decide later. All qualified family members over 21 must sign this filing. What happens to our legal voting age, armed services children between 18 to 21years of age? Have they lost their rights under this filing?
A Qualified Family in Chapter 3, Section 301(a) is defined : "For purposes of this chapter the term Qualified Family shall mean 1 or more family members sharing a common residence. All family members sharing a common residence shall be considered as part of 1 qualified family."
Section 301(b) further sets family size determination to be (A) an individual (B) the individual's spouse ( c) all lineal ancestors and descendents of said individuals and individual's spouse ( so children, grandparents on both sides are okay) (D) all legally adopted children (E) all children under legal guardianship. That's it! No one else is legal in this Qualified Family, who all must live under one roof. This appears to brand a lot of human beings as unqualified, who would have been eligible for their annual income tax refund (see more at #7 prebate misconception) Also, there will be, according to Section 603, Problem Resolution Offices established with their concurrent bureaucracy of Problem Resolution Officers appointed by the state governor or the President, to go out and enforce all the sections in the bill. They will be armed with "Taxpayer Assistance Orders" to give them power to operate. This seems to be a misnomer, as the orders will assist the Sales Tax Administering Authority more than the taxpayer. They will have authority to investigate complaints, initiate action or cease actions (such as liens, garnishment of wages, fines, audits...) Maybe all the IRS agents who lost their jobs will apply for these positions. They sound similar in duties. The Taxpayer Assistance Orders are eerily similar to the Writs of Assistance issued by the British government during the pre-Revolutionary War period that so enraged the colonists. Before these Writs, British customs agents had to legally acquire a warrant for their searches or seizures. The Writs of Assistance made no such requirement. That's the main reason that the Fourth Amendment was a part of the Bill of Rights; to protect us against unwarranted searches and seizures. These Taxpayer Assistance Orders may violate the Constitution by allowing searches and seizures of American citizens and their property without a warrant issued by an independent court upon a finding of probable cause.
Misconception #7 That under the Fair Tax, everyone with a valid Social Security card will get their own prebate check
On the website, they'll tell you that each person with a valid Social Security card will get a prebate check. The Fair Tax bill itself does not say this. What it says is that each Qualified Family will get a single check which must be shared by qualified persons in the household. For instance, if mother lives with you, and works, she will add a small fraction to that check, but will not get a check of her own other than what the designated head of household is required to give. As a matter of fact, the bill actually states that it "shall be divided evenly". How is this "Fair", when different family members contribute different wages and may or may not even help with expenses?
What happens to single unmarrieds living together under the same roof? What happens when they've moved in with Mom and Dad? What happens to four single guys or gals who work together but share an apartment for expenses? What happens to same sex relationships? What happens to aged aunts and uncles or cousins? What happens to friends? None of these people are part of the Qualified Family. How do they get a prebate? We don't know. Do you? Does anyone?
By Section 304(d) the Social Security Administration shall provide a monthly sales tax rebate to the duly qualified family. Note that it says a check, not a check for each person. Some comments on the website might lead you to believe that each social security card holder will receive a monthly prebate check. We can't find that language anywhere in the actual bill. All that is promised is the one check that Section 304 says "shall be divided evenly between or among those persons designated." But remember, even if you're working and 18 years old, you don't get to sign the form, so your prebate stays in the discretion of the designated individual. But if you're a married son and daughter-in-law 21 years or older, living with parents (which happens a lot in these stressed economic times), you are supposed to get an equal share of the single rebate, with your parents, whether you're employed, down on your luck or just a bum, as long as you are a qualified family member. Now we suppose this would apply to your blood relative, but what happens to your daughter-in-law (or your son's girlfriend) who lives with you too, receives a paycheck, pays the 30% at the register, but is not a qualified family member. We can't find where this person and many others will get anything at all.
Can't you just see the sparks flying? Did the people who wrote the Fair Tax bill all live in fairy-tale perfect family situations? There are too many gray areas and unprotected rights the way the bill is currently written. Also, it's a monthly prebate. Poor folks who have large bills due in one particular month like insurance payments or car repairs, could find themselves short of cash to pay those extra taxes. Don't count your prebate before it's hatched.
There are far more gray areas than we can address in this simple format, but this rough draft is a start. We will continue to try to get answers and make them fit the definitions and regulations set out in the actual Fair Tax bill. Remember, it is our responsibility to investigate for ourselves and get the answers before making decisions on something this important. This initiative has been around since 1995 and still hasn't gotten very far. We wonder if maybe that's because some people and businesses have been investigating and couldn't reconcile the facts either?
Remember, there are other plans out there that may be far more "Fair" than the Fair Tax. We really like Ron Paul's plan which also reduces spending. We wonder what Dr. Jorgensen's plan is? What plan could you dream of that would be more fair?
Pat and Shirley Miketinac
July 24, 2010
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