Rep. John Linder's blog on Huck Pac...

I thought I would post Rep. John Linder's blog on Huck Pac for those of you who may have missed it. I'm pasting his blog here, but you can read it at the original Huck Pac blog site by clicking here...

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The FairTax by Rep. John Linder -
We are rapidly coming to the point when people will be telling stories about what a great and powerful nation the United States of America used to be. The cost we are asking our citizens to endure makes us less than competitive in a global economy. We have a tax law with nearly 70,000 pages of law and regulations. Our tax on capital is crippling. Our tax on income for the highest earners takes half of what we earn. All of these costs, as well as the cost of complying with a code that no one understands, become embedded in the cost of our goods and services pricing us out of global markets. This is very well understood overseas. In a recent visit to Ireland, Neal Boortz, the co-author of two books on the FairTax, was told by an Irish gentleman that the Irish are scared to death that we will go to the FairTax. He explained that their economic “miracle” came as a direct result of our crushing taxes on capital and labor. Very simply, American companies relocated to Ireland because their tax code was much friendlier to business.

Since 1998 I have advocated for the FairTax. A simple bill--in fact, a mere 132 pages long--that will abolish all Federal income taxes, including personal, estate, gift, capital gains, alternative minimum, corporate, payroll, and self-employment taxes, and replace them with one simple, visible, personal consumption tax. The FairTax taxes what we take out of society rather than what we put into it.

Every household will get cash distribution at the beginning of each month that will be based on the size of the household and will allow that household to buy its essentials untaxed. Beyond that we are all voluntary taxpayers paying taxes when we choose as much as we choose by how we choose to spend.

Our nation has coped with this tax code for 95 years and it has failed. Our tax code has driven $2 trillion into the underground economy costing us about $50 billion in tax collections. Our tax code has driven $12 trillion into offshore financial centers that should be parked in our markets and banks. We are spending between $400 and $500 billion each year just complying with the code. That is like paying for a dead horse. We get nothing for that expenditure but a headache.

Getting rid of the IRS fixes everything. Keeping it in place and nibbling around the edges of the current system fixes nothing. As former Secretary of the Treasury told me, “You have just proposed the largest magnet for capital and jobs in history.” Why wouldn’t we want the United States to be the outsource destination for jobs? Why wouldn’t we want our nation to be the world’s safest and most stable tax haven? The FairTax will give us these results as well as create an environment that will expand freedom.

We have amassed millions of supporters across the country, all of whom are hungry for change. That said, we have millions more to go and we need to grow this grassroots army. I hope you will go to my website, www.johnlinder.com. There you will find much more information on the bill, and you can join the fight by signing up to become a “Citizen Co-Sponsor” for the FairTax. You can play an active role in bringing change to Washington.

The Presidents Commission on Tax Reform:

"America needs a better tax system...". No kidding? "For millions of Americans, the annual rite of filing taxes has become a headache of burdensome record-keeping, lengthy instructions, and complicated schedules, worksheets, and forms – often requiring multiple computations that are neither logical nor intuitive. Not only is our tax system maddeningly complex, it penalizes work, discourages saving and investment, and hinders the competitiveness of American businesses. The tax code is riddled with tax provisions that treat similarly situated taxpayers differently and create perceptions of unfairness". Excerpt. Read the entire report at taxreformpanel.gov. You'll need Adobe Acrobat Reader. I don't know, but to me, this reports smacks of endorsement for FairTax. See what you think.

The Cato Institute on taxing consumption...

This is an article written by Chris Edwards, Director, Fiscal Policy Studies, The Cato Institute on taxing consumption. To view the entire article, click on the title of this article. You'll need Adobe Acrobat Reader. Very interesting! Isn't the FairTax a consumption tax? Chris writes:

"Switching to a consumption based tax holds the promise of spurring greater economic growth and vastly simplifying the federal tax system."

And again he writes:

"Consumption taxes would exempt personal saving from taxation."

"The chairman of the Council of Economic Advisers has called the income tax “fundamentally flawed.” It is time to replace the flawed income tax with a consumption based alternative."

I couldn't agree more!

The Case for the 'FairTax'

I found this article by Laurence J. Kotlikoff PhD, that had been featured in The Wall Street Journal, March 7, 2005. It's two or three years old, but gets the point across. To view the original article, click on the title of this blog. You'll need Adobe Acrobat Reader. - Big D.

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Our tax code is a mess for a reason. Special interests pay for special favors. And with 17,000 pages and counting, there's plenty of places for our politicians to hide the kickbacks. Meanwhile, all the exemptions, deductions, exceptions and special provisions reduce the tax base, which means higher tax rates and smaller incentives for individuals and companies to produce income. And whether the tax breaks are set in fine print or spelled out in bold type, they generally favor the rich, making our tax system less progressive than is generally believed. No tax system is perfect, but ours is so awful that fundamental reform is the only option. Fundamental reform is not just a necessity; it's also an opportunity to stop taxing income and start taxing consumption. My colleagues and I have been studying income and consumption taxation via computer simulations for some time now. We've found that switching from taxing wage and capital income to taxing consumption can significantly improve economic efficiency and growth. What's more, it can make our tax system much more progressive and generationally equitable. Efficiency means different things to different people. To economists it means equating the extra output workers and savers generate for society with the extra compensation they receive for their sacrifice. Government taxation throws a wrench into this equation, setting the private return from working and saving below the social return and leaving the public supplying too little labor and capital. When tax rates get really high, people stop working and saving altogether. At that point, everyone can see the system's nuts. But even moderate tax rates can cause major economic distortions. Unfortunately, our tax rates, articularly on labor earnings, aren't moderate. They're high. This is true despite recent federal tax cuts. Add together all the federal and state personal income, payroll, excise and sales taxes, and you quickly reach effective wage tax rates of 50% -- and not just for the rich and middle class. For the poor, the rates reach this level thanks to their loss of welfare and health-care benefits as well as tax credits from earning more money. The bottom line is that our tax rates remain far too high and continue to generate a very large efficiency loss from taxation. The introduction of a consumption tax would broaden the tax base, significantly reduce tax rates, and improve economic efficiency. The efficiency gain comes not just from lowering rates; it also comes from effectively taxing something whose supply can't be distorted. That something is the existing stock of wealth. Democrats need to listen up here. Their view that taxing sales is regressive is just plain wrong. Taxing consumption is effectively the same as taxing wages plus taxing wealth. The logic is simple if you consider the most straightforward way of taxing consumption, namely via a retail sales tax. In this case, when people spend their wages or their assets on goods and services, they pay sales taxes, meaning they end up with less to consume. This is no different from having the wages and wealth directly taxed, but facing no sales tax. But what about saving one's wages and wealth and spending these funds plus accumulated interest in the future? Doesn't this avoid the consumption tax? No. You end up paying consumption taxes not just on the original sums, but also on the accumulated interest. The same holds if you save your wages and wealth and give it to your kids. When they spend it, they pay consumption taxes on both P&I. In present value it's the same as taxing the wages and wealth immediately. Thus a retail sales tax, with its effective wealth tax component, is highly progressive compared, for example, to taxing just wages. Over the years, we've moved pretty darn close to just taxing wages by reducing capital gains and dividend taxes and expanding tax advantaged retirement accounts. In the process, we've not only reduced overall progressivity. We've also shifted the tax burden from the elderly, who receive most of the capital income, to the young, who earn most of the labor income.
The FairTax proposal, which awaits Congressional passage as HR-25, would greatly rectify this intra- and inter-generational inequity and do marvelous things for our economy. The FairTax (details at www.FairTax.org) replaces not just the federal and corporate income taxes, but also the federal estate and gift taxes, and the highly regressive FICA payroll tax with one simple and fully transparent federal retail sales tax. In addition, the FairTax provides a highly progressive rebate to each household of their sales tax payments on consumption expenditures up to the poverty line. Assume HR-25 becomes law. Overnight, people would move from paying, to the feds and states, roughly 50 cents per dollar earned on their supplies of labor and capital to roughly 30 cents. Because the relationship between tax rates and economic distortions is non-linear, this would reduce the excess burden of our tax system by roughly two-thirds! A very conservative estimate of this annual saving is 2% of GDP or about $250 billion for the coming year. Add in the aforementioned $250 billion in wasteful tax compliance, and we're talking big bucks. But this is still small potatoes compared with the gains in economic growth associated with adopting the FairTax. Over the next few decades, the FairTax would likely raise U.S. GDP by 15% relative to its alternative value. Here's why. The FairTax generates much bigger incentives to work and save. It also redistributes from rich older spenders to younger savers. While it's not widely known, America's biggest spenders are actually the elderly, and for good reason. They know they have fewer years left to spend their resources and, consequently, are consuming their resources at more than twice the rate of the young. What about the poor, both young and old? Wouldn't they be worse off under the FairTax? No. The FairTax's rebate would leave poor young households paying a zero net sales tax. And it would leave poor elderly households better off thanks to both the rebate and Social Security's automatic adjustment of benefits to any increase in prices. The FairTax would also relieve the tax burden on middle-class workers. Since the FairTax generates a goodly portion of its revenues by effectively taxing wealth, it can afford to have a lower effective tax on wages. Is a sales tax the best way to tax consumption? Notwithstanding some enforcement concerns, my answer is yes. The flat tax, propounded by some, purports to tax consumption. But read its fine print or talk to its sponsors. You'll find special transition rules that eliminate any effective taxation of existing wealth, leaving the rich, particularly the rich elderly, completely off the hook. The same simulations showing efficiency gains and enhanced economic growth from consumption taxation, show the reverse from moving to wage taxation. Thus, the flat tax, as it would likely be implemented, is a loser on both economic and moral grounds. Fundamental tax reform is long overdue. Consumption taxation is the way to go. The FairTax is a reform every Democrat who cares about equity should love. And it's a reform every Republican who cares about efficiency, transparency and growth should champion.

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Dr. Kotlikoff, chair of the economics department at Boston University, is co-author of "The Coming Generational Storm". MIT Press.

Give the "FairTax a Fair Chance"

Reposted from Bob McTeer's blog, 24 July 2007. Bob holds the tax chair at the National Center for Policy Analysis - Big D.

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Holding down the tax chair at NCPA is somewhat different from what I'm used to. During my 36 years at the Fed, and especially my 14 years as a policymaker on the FOMC, I thought of taxes primarily as half of fiscal policy, which has more to do with how tax receipts stack up against government spending than with the efficiency of the tax regime. During most of my tenure, government spending exceeded tax receipts and produced a deficit. The perennial question was what the deficit would do to the economy. Would it spark inflation? Would it pull us out of recession? Did it really matter?

My early training and subsequent reading led me to conclude that the economic impact of a federal budget deficit depends mostly on how it is financed–with existing money, new money, or new money plus new bank reserves, which means further monetary expansion. In other words, the impact of fiscal policy depends primarily on how it is financed, and on monetary policy. The other relevant factor is the state of the economy–how close we are to full employment of labor and other productive resources, or how much slack we have. The financing and the condition of the economy determine the impact of a deficit, which really means that monetary policy is more important than fiscal policy.

In general, I shared the profession's preference for a balanced budget over time, with helpful deficits during economic weakness matched by helpful surpluses during more exuberant times. This ideal almost never happened, of course, so a lower bar led us to measure the deficit as a percentage of total GDP and forgive those that didn't break through historical benchmarks.

When I came to the Dallas Fed in early 1991 and was briefed by its excellent economists, I asked our public finance specialist whether there was a good rule of thumb for good tax policy. I don't remember her exact words, but the answer was that taxes should have broad coverage and low rates. They should distort economic activity as little as possible. Balanced budgets over time and cycles were preferable to chronic deficits. The main evil of deficits was that they represented negative saving, which had to be offset elsewhere to finance adequate investment.

While I considered deficits to be important, I was persuaded by Milton Friedman's argument that the magnitude of government spending relative to the size of the economy was more important than how it was financed, whether by taxes or debt. In other words, the size of government was more important to economic performance, and especially to individual liberty, than the size or percentage of the deficit. I also accepted the Friedman proposition that deficits were not necessarily a bad thing if they caused the politicians to curb spending. The problem with higher tax revenues to balance the budget was that, in practice, they would just be spent to make government bigger. They would just feed the alligator.

Some, but not much, attention was paid to whether the existing tax system was a good system and whether it should be scrapped in favor of something radically new and different. The most common reform proposals, which sounded good to me, were versions of the flat income tax. I recall Dick Armey coming to the bank to explain his flat tax proposal and emphasizing that taxes could be reported on a post card. I remember thinking that it sounded like a good idea, but in the back of my mind I couldn't help thinking about the old line that, if something sounded too good to be true, it probably was. I must now reevaluate that thought in view of the successful adoption of flat-tax systems by several eastern European governments. Who would have thunk it?

The most radical tax reform proposal during my time was conceived by two friends of mine... the national sales or national consumption tax, more recently called the Fair Tax. In many respects, it made the most sense of all the reform proposals, but it was so radically different that I had a hard time imagining it as a practical alternative to the flat income tax. I participated in a discussion of the national sales tax with Milton Friedman, who pronounced it a good idea... the ideal solution, perhaps-but he too worried about its practicality.

That was several years ago, and I've been surprised by the growing national support for the Fair Tax. It's still a long-shot reform, but not as long a shot as it once seemed. In thinking about that, it occurred to me that Friedman's qualification was not very Friedman-like. He was a well-known advocate of economists limiting themselves to "positive" economics and leaving the normative aspects to practitioners, i.e., politicians. Economists should not concern themselves with practicality or the political appeal of sound economic proposals. They should give the politicians their best possible proposals and let them worry about implementation.

So, here's where I am now. Both the flat tax and the fair tax are big improvements over the current mess. The fair tax is probably superior to the flat tax if it could be implemented. Fortunately, the world is not holding its breath waiting for me to decide. But if you are interested in the topic, as you should be, I recommend that you learn more about the fair tax and decide for yourself. Start with their excellent web site, fairtax.org. I recommend it to you and ask that you not–as they use to say in my church–"harden your hearts" against it. Please, give the fair tax a fair chance!

National Taxpayers Union supports FairTax

This is reposted from freerepublic.com. It's also at the National Taxpayers Union web site. - Big D

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Why NTU Supports the FairTax:
The Fair Tax Act would promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.
Legislative Status:
The FairTax has been reintroduced for the 110th Congress. It is H.R. 25 in the House and S. 1025 in the Senate. NTU has endorsed the FairTax since 1998 and continues to work for its adoption
Benefits of the FairTax:
The FairTax plan brings fairness, transparency, and efficiency to our unfair, complex, and confusing Tax Code.
The FairTax rewards job creation, hard work, and individual responsibility. By doing away with payroll taxes, companies can afford to hire more employees and outsourcing looks less attractive. By taxing consumption instead of income, individuals are provided with a strong incentive to work hard because they keep more of what they earn. By taxing spending, the FairTax allows us to control how much tax we pay depending on our individual lifestyle choices.
The FairTax ensures that all Americans pay their fair share of taxes. The IRS currently admits to a 25 percent non-compliance rate with the Tax Code, often done unintentionally. By placing the tax at the point of sale, no individual or special interest group could evade taxes with the help of an expensive tax attorney or well-heeled lobbyist. Furthermore, we could stop making criminals out of ordinary Americans who prepare their tax returns incorrectly by mistake.
How the Plan Works:
The FairTax proposal is a comprehensive revenue plan that would eliminate most major federal income and payroll taxes, including personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.
(Excerpt) Read more at ntu.org ...

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FairTax good for America, bad for liberals...

This is a blog post from constitutiondefender. This article is linked back to constitutiondefender. If the author wishes me to remove this blog, I will at his request. I thought it was worthy of publishing, since we both support the same cause. - Big D.

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For those of you unfamiliar with the FairTax, It is a comprehensive taxation system devised by a group called Americans for Fair Taxation. The group spent some 23 million dollars to research and develop the idea which has been popularized in a book by Neil Boortz and has also been introduced in the 108th Congress as H.R. 25. In a nutshell, the system replaces ALL income taxes with a national consumption tax. There would be no income tax, no FICA, no estate taxes, and no capital gains taxes. The entire federal government would be funded by one very simple tax. I cannot possibly list all the details here. Please visit fairtax.org for more information.

Among the many advantages are:

1.) Simplicity: No tax returns to file, no need for a huge bureaucracy to enforce the tax code, fewer loopholes etc.

2.) Transparency: The amount we pay the government is obvious. Currently, when you buy something, you pay all the corporate income taxes of every business that had a hand in bringing that product to your door. And you've already paid taxes on the money you're using to buy it. This "cascading" tax effect makes it virtually impossible to know what portion of your income actually ends up in the hands of the federal government. The FairTax leaves no such ambiguity.

3.) Global Competitiveness. Obviously with no corporate income tax, the United States becomes an extremely attractive place to locate your business. Of 500 companies polled, 400 said they would move their operations to the US if there were no corporate income tax.

4.) Fundamental Fairness: The government can no longer use taxes to punish people for making money. Yet the system is still progressive. Since people who make more money spend more money, the tax burden distribution would not change much at all from what it is now. In addition, the program encourages people to save, effectively making all savings tax free.

This is by no means an exhaustive list, but it should be enough to get the idea across. For the life of me, I cannot think of a legitimate reason why any citizen wouldn't want a system like this. I can, however, see many reasons why liberal politicians should fear it:

1.) Simplicity: Eliminating government bureaucracy is anathema to the liberal big-government agenda. (This applies to the current fiscally liberal administration as much as it does to any Democrat candidate.)

2.) Transparency: Liberals would prefer to keep citizens in the dark about how much of their money actually ends up with the government. It's much easier to sell huge government programs to the public if they are kept unaware of the real costs.

3.) Global Competitiveness: With businesses freed from income taxes, keeping jobs in the US no longer requires the artificial hand of government intervention. This significantly reduces outsourcing as a hot-button issue, making it harder to mobilize the labor vote.

4.) Fundamental Fairness: Liberals have a long and rich tradition of punishing success by increasing the percentage you pay as your income goes up. While the Fair Tax is still a progressive tax, it gives all citizens more control over how much they pay in taxes by controlling their own consumption. Liberals don't like the idea that citizens should have control of their own money.

It should be clear by now that I support the FairTax, but I will take a minute to point out a couple difficulties which are logistical in nature. They aren't fundamental flaws in the system:

1.) Repeal of the 16th amendment: It is absolutely essential that government not be able to re-instate the income tax. This could lead to a dual taxation system which would be catastrophic. The amendment process is sufficiently difficult to pose a rather large hurdle for the FairTax to overcome.
2.) Transition: The transition from the current system to the fairtax system is littered with difficulties. For instance, money saved in accounts that are not tax-deferrable would get way overtaxed. Not only has income tax been paid on that money, but another huge tax will be levied when it is spent. Also, the FairTax would pretty much eliminate the very lucrative tax-preparation industry resulting in temporary job losses for countless advisors and CPAs. I should point out that these difficulties have been addressed by Americans for Fair Taxation, and I agree with them that the difficulties are not insurmountable.
I invite anyone to comment on what real long-term downside there could be to this system. First, make sure you go to fairtax.org and make sure you understand the basics of the system. They spent 23 million in research, so it not easy to casually refute their claims. They have the data to support their position.

The American Farm Bureau Supports FairTax

Surfing around the net, I came across this bit of information. The American Farm Bureau, "The Voice of Agriculture", has joined a list of business, industry and economic groups who have come out in support of HR-25, The Fair Tax Act. I found this article on their web site (click here). Interesting, that The Farm Bureau would actually post a FairTax logo on their web site. What I'm really trying to do is draw some attention to what the pundits always say... "if FairTax was so good for the economy, why don't business and economic groups support it?". Well, here's just one and I'll post more later.

What is the FairTax?

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.
The FairTax Act (HR 25, S 1025) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.
The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.
The FairTax:

* Enables workers to keep their entire paychecks
* Enables retirees to keep their entire pensions
* Refunds in advance the tax on purchases of basic necessities
* Allows American products to compete fairly
* Brings transparency and accountability to tax policy
* Ensures Social Security and Medicare funding
* Closes all loopholes and brings fairness to taxation
* Abolishes the IRS

We offer a library of information throughout this Web site about the features and benefits of the FairTax plan.