In an October 25, 2010 article in the Wall Street Journal on income tax breaks, it listed three prominent ones as being in the cross-hairs of the Obama Administration: home mortgage interest deductions, child tax credits, and the ability of employees to deduct their health insurance premiums on a pre-tax basis from their gross pay. In the closing of the previous essay in this series, I pointed out that the motivation for holding onto an income tax in the face of the evidence against it, and the overwhelming evidence in favor of a consumption tax, known as “The Fair Tax”, are but two ─ politics and power. By holding onto a repressing and economically-stagnating tax system as is the income tax, those in Congress and the Administration can manipulate the tax code so as to woo support from special interest groups that will support them and keep them in power. Perhaps this is no more evident than the attitude quoted by the WSJ quoted in an article regarding this attitude of the Obama White House:
“The tax benefits are hugely popular with the public but they have drawn the panel’s focus, in part because the White House has said these and other breaks cost the government about $1 trillion a year.”
Just what is an income tax “break”? Bluntly stated, it is the government telling us that they have deemed it acceptable to them to allow us to keep some of our own money. This is precisely the attitude manifested in this statement made by the Obama Administration, i.e. for them to allow these tax breaks to continue would cost them, the government, one trillion dollars annually. Whenever something costs you or me money, it is money that belongs to us that must be paid out. So for these tax breaks to cost the government that amount belies the attitude in which Obama and the Democrats in Congress view it as money belonging to them and not us! This attitude on the part of the central government is precisely one more reason why the income tax must be eliminated and replaced with the Fair Tax.
With the income tax and the subsequent payroll deduction mechanism that was foisted upon us by the Roosevelt Administration during World War II, you have no control over when or how much tax you are to pay. Such is not the case with the Fair Tax. Since taxes under that system are paid whenever you make a purchase and the amount of the tax depends upon the value of the item you purchase, you decide both when to pay the tax and how much to pay by the control you have over your buying habits. If you decide that you need a $4,000 HD flat-screen television and you can afford it, then you will pay more in taxes than if you decide that you can be satisfied with an $800 set purchased at a discount from a wholesale warehouse. You can decide to reduce your tax bill by reducing your purchases and setting aside the extra funds into a savings vehicle for your retirement, your children’s college tuition, or any other future goal. The progressives who wish to use the income tax system to force the wealthy to pay more in taxes should be championing the Fair Tax, as under it the wealthy will obviously pay more in taxes because they spend more money, and their purchases will be items with a higher price tag than those items purchased by the middle and lower classes. Despite the Fair Tax accomplishing its stated goal of making the wealthy “pay their fair share”, Progressives instead misrepresent and rail against it because the purpose of the income tax, in their political philosophy, is not the funding of government but rather the power to control the lives of individuals. The Fair Tax takes that control out of their hands and leaves it in the hands of every individual consumer.
This, however, is not all – there are many more benefits to be had by the enactment of the Fair Tax bill. By throwing this yoke of the cost of both these income-related taxes and the compliance costs associated with them off the shoulders of businesses, they can now apply their freed-up capital to the expansion of their plants and equipment, the hiring of more employees, and pouring more resources into research and development from which will come new and improved products for society. No longer will businesses have to try and second guess what the government will do to them by Congress’s manipulation of the income tax code but instead can focus their attention on their primary goal ─ that of making a profit and expanding their business ─ a goal that benefits those currently employed, the investors in the firm’s stock (including retirees), those currently unemployed, and society in general. Progressives (or as I prefer to call them, Fascists) need to come to the realization that “profit” is not a dirty word; it’s what makes the economic engine of a society run. If you take away the profit motive, and redistribute the wealth in order to achieve the socialist nirvana of “equality”, you get the economic stagnation along with its high unemployment in which our nation is currently mired.
How do I know that our current tax system obstructs investment and expansion by business, whereas the Fair Tax would encourage it? The answer comes from the pen of James Madison who wrote in The Federalist Papers, No. 62, in 1788:
”In another point of view, great injury results from an unstable government. The want of confidence in the public councils damps every useful undertaking, the success and profit of which may depend on a continuance of existing arrangements. What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government? In a word, no great improvement or laudable enterprise can go forward which requires the auspices of a steady system of national policy” [emphasis added].
We are being told in news reports that many businesses are sitting on their capital primarily because they are uncertain as to the impact of what tax policy changes being either debated or delayed by the Obama Administration and the Congress will have on their financial health in the near future. There is also more and more evidence of higher costs coming out of the recently passed “Obamacare” legislation, which again adds to this uncertainty as businesses try to navigate this massive regulatory millstone that has been placed around their necks. Then there is the proposed “Cap & Trade” (or as it should more accurately be titled, “Cap & Tax”) legislation that Obama and his fellow Fascists in Congress have their sights set on enacting. This would have a devastating impact on every business throughout the nation. In the words of Madison from over two centuries ago: “What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government?”
How then does the Fair Tax resolve this problem? Very simply ─ it answers Madison’s problem of an unstable government causing uncertainty among business owners from the small entrepreneur to major corporations. It provides absolute concrete certainty as to what tax burdens businesses will bear ─ None! The only tax burden they must account for in their operations will be the consumption tax on any products or services that they purchase at the retail level. Can you then see how this would unshackle the restraints currently holding back businesses by the income tax system and the agenda of the fascists, freeing them to make their plans and put them into action ─ plans and actions that will drive up our GDP, expand employment, and attract more business investment and jobs from other parts of the world. As Alan Greenspan testified before Congress in 2005, the predictability in the tax code would “facilitate better forward-looking decision making by households and businesses.”
One of the major criticisms lodged against the Fair Tax by its opponents is that it will be the harshest on lower income families. Such is not the case and I will deal with this more in detail in a later essay. Allow me to address this false accusation head-on at this juncture by offering the positive side to the argument. The following information was the result of a study conducted in 2005 by noted economists Lawrence Kotlikoff of Boston University and Sabine Jokisch of Stanford University. Their report states
“the capital stock will be 13 percent higher under the FairTax system than under the current system by 2010, and 41.4 percent higher by 2030, and that long-run interest rates would be 150 basis points lower than under the current system. Their study states that, ‘the shift to the FairTax raises marginal labor productivity and real wages, over the course of the century, by 18.9 percent and long-run output by 10.6 percent. . . . These macroeconomic gains have important microeconomic welfare implications. In the long run, low-income households experience a 26.7 percent welfare gain, middle-income households experience a 10.9 percent welfare gain, and high-income households experience a 4.7 percent welfare gain‘ “ [emphasis added].
In light of this, how is it that opponents can argue that the poor will suffer the most when clearly they will have the greatest gain? Those who profit the least from this move away from an income tax system to the Fair Tax are the wealthy. Since the poor benefit the most and the wealthy the least under the Fair Tax, it can only be surmised that under our current income tax system the opposite is the case, and that is just what is true. But the poor don’t pay income taxes, so how are they the most repressed by it, cries the Progressive? The answer is simple ─ they still have non-income related payroll taxes deducted from their incomes, plus everything they purchase comes with that embedded 23% income tax cost that I’ve mentioned in previous essays. I recently read an opposition article by a CPA in Las Vegas that was laughable in that the gentleman was both a CPA and an MBA. In his article he mentions that the Fair Tax would not be fair because it would do away with the corporate income tax and instead the poor, who now pay no taxes, would be burdened with a sales tax that they currently do not pay. You would think that a CPA with an MBA degree would know better than to talk about corporations paying income taxes. No business anywhere pays income taxes ─ the taxes they remit to the government are simply included, as the researchers at Boston, Stanford, Harvard, and other such universities have pointed out, in their prices and passed along to the consumers ─ which include the poor! Adam Smith pointed this out over two hundred years ago in his classic work, The Wealth of Nations. I would think a CPA and MBA graduate would be acquainted with Smith’s monumental exposition on economics! Thus another great benefit from the Fair Tax is how it will increase the incomes of the poorest among us ─ a true and successful assault in the government’s so-called “War on Poverty.”
So far I have just scratched the surface of this solution posed by the Fair Tax to the economic malaise which is draining the life out of our economy and threatening the very future of our nation as a free republic. In the next essay I will continue this examination of the Fair Tax and answer more of the objections thrown against it by those whose only motives are their own selfish designs on their own wealth and power. In the meantime, to learn more of the scholarly research that has been compiled on the tax, you may go to this website: About the Fair Tax – Research Papers.
-Epaminondas
