There Is a Solution

Now that the elections are over it’s time to start prioritizing our most important issues and developing long term solutions. The Federal Government is no longer facing an “Emergency” so it’s clearly time to think through and resolve the problems left over from previous congresses.

Certainly the three most pressing priorities are to:
1. Extend the Bush Tax Discounts across the board, making them permanent for a minimum of three years.
2. Repeal the entire Patient Protection and Affordable Care Act (Obama Care) including all related legislation included in H.R. 1: American Recovery and Reinvestment Act of 2009 and fire all those assigned to Oversight Committees
3. Repeal and eliminate the Consumer Financial Protection Agency (CFPA) and fire all individuals hired to fill positions in this Agency.

Once these three top priorities are accomplished, or at least underway, the Congress next needs to address the most pressing issues needed to assure a long-term economic recovery, return individual liberty and eliminate (or significantly reduce) the incentive and primary vehicle of government corruption. These priorities specifically include:
1. Provide the incentives and removing obstacles preventing rapid employment growth
2. Provide the platform for increasing high paying jobs (with manufacturing being the highest priority as these jobs typically pay the highest wages)
3. Reduce Government Spending across the board. This is an actual reduction in real dollars budgeted/spent by the Federal Government; not a reduction in forecasted spending increases
4. Increase total tax revenue to the Federal Government to pay down the debt and fund currently unfounded obligations
5. Make the USA more competitive in International Trade
6. Eliminate the primary cause of Congressional Corruption
7. Empower the American Citizen to manage and budget their own money to aid in the economic recovery and increase individual liberty and freedom
8. Increase the value of the US Dollar to assure it remains the primary base for International trade and worldwide economic stability

Sound like an overwhelming list of needs? Perhaps. But the truth is there is a simple and correct solution to each of these issues. While it is not a total panacea for all our problems it does address these eight and provides the basis for solving even other pressing priorities. The solution is the “Fair Tax Bill” (HR 25).

The first reaction many have when I’ve discussed this with them is how is this possible? The next most common reaction is to say I’m being naive to think this could really resolve these pressing needs/problems. However, once the explanation is provided almost everyone I’ve talked with has become a believer. Let me explain.

First, to really understand the concept and research that has gone into the development of the Fair Tax you’ll need to read the book The Fair Tax Book by Neal Bortz and John Linder. For those who don’t like to read or truly don’t have the time you can go to the FairTax website at: http://www.fairtaxthemovie.org/facts/index.php

This site includes a brief movie and the basic facts behind HR 25 The Fair Tax Bill (Of course the bill must be refilled in January and will have a new number assigned).

Once you’ve gotten the facts behind the bill and how it will be implemented go to:
http://www.fairtax.org/site/PageServer?pagename=calculator

This is a calculator where you can input your personal financial information and compare the impact of the FairTax with your current tax liability. This will allow you to determine if you will be better off with the current system or the Fair Tax.

In making this comparison though remember a few key facts:
a. We currently spend more than $11.4 Billion (based on the 2009 budget) to operate the IRS every year
b. During 2008 the IRS refunded $122.7 Billion. This is nothing less than a no interest “loan” we are forced to make each year when taxes are taken from our paychecks and not refunded until the following year.
c. Our tax system is totally undecipherable. The “abbreviated” tax code includes:
i. 19,609 pages
ii. 451,121 paragraphs
iii. 3,697,733 words
To prove this point Money Magazine conducted an experiment with recognized tax experts. MONEY mailed the financial profile of a hypothetical family to the participants in the project, who agreed to prepare the family's tax returns based on the information sent. These 50 tax “experts” included tax lawyers, CPA’s who specialized in tax returns, experienced Senior Tax Preparers from companies such as H&R Block and Senior IRS Agents. After reviewing the data provided each of these experts calculated the tax liability for this hypothetical family. The 50 pros computed 50 different results, each calculating a different amount of tax due by the hypothetical family. The amount of tax owed varied by as much as 50%! No two “experts” agreed on the same level of tax liability. The final tax liability calculated by these 50 tax experts spanned an enormous range, from a low of $7,202 all the way up to $11,881. This begs the question: How is this fair?
d. According to the IRS, more than 80% of households pay professional tax preparers to calculate and file their annual tax returns (this includes those who use tax preparation software such as TurboTax). The average fee charged by a tax professional is $799 (the range was from $187 to $2,500). This amounts to nothing less than an additional hidden tax and financial burden on nearly all-individuals!
e. The cost of tax compliance on the corporate side under our current tax system is simply incredible, and not in a good way. Estimates are in the range of hundreds of billions of dollars and billions of man-hours being wasted simply to comply with the tax code and supporting documentation. This is a major drain on our economy and a cost of operation that could be better used in more productive employees.
f. With the Fair Tax the entire tax code would be reduced to just:
i. 131 pages
ii. 3,651 paragraphs
iii. 29,706 words
g. Absolutely nothing would be deducted from your paycheck! No Federal Income Taxes, No Social Security or Medicare Taxes, nothing, zip, zero, nadda!
h. No tax returns would be required. Ever. Nothing would be reported. No records would be needed for calculating deductions or justifying credits. No calculations would be needed to determine taxes due or refunds.
i. The IRS would be eliminated, or at least the vast majority that is focused on individual and corporate taxes

As you read more about the Fair Tax and learn how it will be implemented you’ll find many other advantages but for the purpose of determining which system would best benefit you and your family these are sufficient.

OK, the question still remains, how can the Fair Tax resolve the 8 pressing issues identified earlier? Here is a brief explanation:
1. Provide the incentives and removing obstacles preventing rapid employment growth – The uncertainty surrounding our current tax situation is one of, if not the primary, reasons business owners are not hiring. Additionally, as the current tax system is subject to change on an annual basis business owners and executives find it difficult to evaluate major investment risk and rewards. The failure of the Real Estate Investment market in the ‘70s, the failure of the S&L industry in the ‘90s, the Housing Market Collapse just these past years as well as numerous other major economic disasters can all be traced back to unexpected changes in the tax code and related legislation by our elected representatives. Now we face the uncertainties relating to the extension, or death, of the Bush Tax Cuts, the Patient Protection and Affordable Care Act (Obamacare) along with the Quantitative Easing of $600 Billion taken by the Fed on Tuesday (November 2nd, 2010) which will devalue the US Dollar by at least 20% which will negatively impact exports while increasing the cost of virtually everything we import as well as forcing domestic price increases as well and you can begin to understand why business executives and owners are unwilling to add more employees or expand their business until some level of certainty is realized. By eliminating our current tax system and introducing the Fair Tax certainty will be introduced. At the same time the actual cost of employment will be reduced significantly in the form of both direct and indirect costs. As a start, the 7.5% employer share of SSI and Medicare Taxes will be eliminated as will be the overhead cost related to the preparation and filing of payroll taxes and year-end tax statements. Additionally, companies will benefit from the elimination of all corporate taxes, which is another bottom line savings that reduces the cost of operation and employment. Associated with these savings are the cost of tax calculations, tax form preparation and associated CPA and legal expenses. This creates the ideal environment for hiring additional employees.

2. Provide the platform for increasing high paying jobs (with manufacturing being the highest priority as these jobs typically pay the highest wages) One of the biggest problems facing America today is that we no longer are a manufacturing country. We’ve gone from a net exporter of finished goods to a net importer. Today it’s nearly impossible to find an article of clothing, footwear, electronics, household products and appliances, a Television or even car parts that isn’t manufactured overseas and imported into the US. As a result the highest paying jobs, in manufacturing, are quickly disappearing. By introducing the Fair Tax manufacturers in the US would have a phenomenal cost advantage. Embedded taxes are those that comprise a portion of the price we pay for products and services. Those behind the Fair Tax have invested over $20 million for research to calculate and identify the true cost of embedded taxes. The result is an average of 22%. It varies across industries but this figure is the basis of The FairTax, which would be 23%. What this means is that if companies do not have to pay the multiple mandated federal taxes resulting in the overall consumer end price would decrease by this same 22% (original price level - embedded taxes = lower price level). A company could not afford to keep their prices at the higher level because competition would quickly run them out of business. Competition forcing prices to find a new equilibrium is the beauty of the free market system and the Fair Tax. (These calculations do not include the additional savings companies would realize from the elimination of tax preparations, filing and cash flow drains related to both payroll and corporate tax payments, which would most likely further reduce prices and increase profits.) In place of these embedded taxes would be the FairTax. Extensive research demonstrates end consumer price levels would remain virtually the same, or more likely lower, than those under the current tax structure. These advantages would make it virtually impossible for overseas manufactures to compete in the US as those products would be subject to the same Fair Tax rate but would not benefit from the elimination of embedded taxes throughout the manufacturing process. As a result new company startups and expansion of existing manufacturing companies would be exponential. Additionally, those companies that currently manufacture offshore would have to bring these manufacturing operations back into the country to take advantage of the tax benefits and lower production costs. This would result in the USA once again becoming the number one manufacturer in the world. This in turn would create tens of millions of new manufacturing related jobs paying the highest wages of nearly all jobs.

If you’re not yet convinced the Fair Tax would result in exponential growth of manufacturing and related jobs think about this. There are currently trillions of American dollars working offshore to escape our confiscatory tax system. As the tax laws are currently written, if that money is brought back, it will be taxed. The current administration has even made a point to go after this money working with other Governments to tax it anyway! The money belongs to both companies and individuals, and they are keeping it out of our system for good reason; to keep what is rightfully theirs. In February 2009, Congress passed a $787 billion stimulus package. What has it stimulated? It certainly wasn’t the expansion of jobs and high paying career positions. Now, imagine if trillions of dollars came back into our country. These are trillions of dollars reentering the market that do not need to be printed or borrowed! Needless to say, things would be very different than what we are currently experiencing and job growth would be the number one benefit.


3. Reduce Government Spending across the board. This is an actual reduction in real dollars budgeted/spent by the Federal Government; not a reduction in forecasted spending - The current Federal debt is just over $13 Trillion! Additionally we have a total debt including unfounded mandates of more than $111 Trillion – this is a personal debt owed of more than $1,008,200 per person! Personally I know of very few people who can pay this debt. Can you? (For up to date numbers go to: http://www.usdebtclock.org )

As daunting as this is it doesn’t include the impact of the Fed’s announced it has implemented for the first time a very risky maneuver called Quantitative Easing. This amounts to nothing less than printing more dollars in order to purchase $600 Billion of Government Debt. We are therefore increasing the total amount of US Currency in the worldwide market by an additional $600 Billion. In reality this is little more than taking an IOU from your left pocket, transferring it into your right and then stating you no longer have the debt. But worse is the fact that the Fed has intentionally devalued the US Dollar by a minimum of 20%. Ben Bernanke, Chairman of the Federal Reserve Bank, testified this will result in a devaluation of the dollar of approximately 20%. However, during testimony, he stated he could not guarantee it would not be greater, though he believed it would not be less. What this means is that if you have $10,000 in savings or income it will soon be worth only $8,000. This will result in an increase in the cost of all imported items and commodities equal to or greater than this 20%. So if a barrel of oil now sells, is imported at a cost of, $80 a barrel the new cost will be $96.00. And the cost of gas and everything made with petroleum will have a corresponding increase. After fuel and petroleum related products the next commodity to be impacted will be food. Not just because of the cost of fuel but also the increased cost of fertilization, irrigation, transportation, etc. Let’s not forget how much of our basic food is now imported. These items will also have a significant cost increase affecting every family’s table. Some experts, perhaps pessimistically, have stated many families will have to choose between paying their mortgage and putting food on the table.

Clearly we are at an economic crossroad and must decide if we will continue down the path of certain economic ruin or reverse course to reinitiate fiscal responsibility. One way to reduce government spending is through the elimination of Government Departments and Agencies. Implementing the Fair Tax would allow for the complete dismantling and elimination of the Internal Revenue Service (IRS) with an immediate savings of more than $11.4 Billion per year! Certainly some employees would be retained to address the issue of collection of sales taxes from the Fair Tax and duties on imported items but it this is a minuscule portion of what is currently in-place. Additional government headcount can also be reduced in the Treasury Department and Department of Justice, the Congressional Budget Office, and numerous other Departments, Agencies and Organizations within the Federal Bureaucracy resulting in hundreds of millions, if not billions, in additional savings. And these are just the direct savings. Additional savings will be realized in indirect costs associated with our current tax system. Of course this is only a drop in the bucket of the savings needed to reign in Government excess. The point is the Fair Tax will directly contribute to reducing the size and intrusiveness of the Federal Government. This is not the place to go into other needed cost savings by the Federal Government but suffice to say it must happen.

4. Make the USA more competitive in International Trade – As was detailed in Item # 2 above, we are a net importer with very few of our basic products manufactured here in the US. YTD through September 2010 we imported more than $15.1 Trillion worth of raw steel and steel products. This is an increase of 26.5% from the same period in 2009. We have been steadily increasing more steel and steel products for the past decade. Even with a faltering economy our imports of steel and steel products has continuously grown every year (US Census Report, September 2010). The situation is the same in virtually every commodity category. Just try to find a “Made in the USA” label on any product available in Walmart. You’ll be hard pressed to find one on even the most familiar trademark label of US Companies. The point is the US is no longer competitive in International Trade. There are the few exceptions but again, there are very, very few of them and they are becoming even fewer every year. Now with the immanent devaluation of the US Dollar our position in International Trade will become even more precarious. Our cost of imports will quickly grow and our ability to export will continue to decline as more and more manufacturing plants are closed or moved offshore. As explained, implementing the Fair Tax will quickly reverse this situation making the US trade balance turn from negative to positive. And this means US dollars will remain within our own country where they can be used for the purchase of goods and services which will further support our economic recovery creating even more jobs and increasing government revenue which can be used to further reduce our debt.

5. Increase total tax revenue to the Federal Government – One of the primary advantages of the Fair Tax is that every single individual, regardless of the source of their income or if they are in the US legally or not, and all visitors to the US will pay the Fair Tax on each and every new product or service purchased. The IRS estimates it lost more than $127 Billion in unpaid taxes from unreported income and tax evasion in 2008. This figure is expected to increase every year into the foreseeable future. What this means is those whose income does not come from a reportable source (such as illegal activities, gambling and related sources) are not taxed at all. Additional the IRS reports both individuals and corporations are successfully avoiding payment of taxes by under reporting their income/profits and by other tax evasion methods. Under the Fair Tax this would no longer be relevant as income would no longer be the source of taxation. All taxes would be based on purchases of new products and services. Thus those who currently do not pay taxes would begin paying them on each purchase. This not only levels the playing field it will significantly increase the tax base without penalizing anyone who has been legitimately been paying their taxes under the current system. The fact is the tax base pie will expand, as it will include every single person here in the country. If they purchase something they will have to pay the tax on it. This will include all illegal aliens as well as visitors. With the increased tax base total tax revenues to the government will increase. This increased revenue can be used to reduce the deficient and pay for unfounded mandates such as Social Security and Medicare.

6. Eliminate the primary cause of Congressional Corruption – This one is a no brainer. Just ask yourself what is the number one topic of Lobbyists and Special Interest when talking with our elected representatives? It should come as no surprise the number one topic is taxes and tax related. And how do lobbyists and Special Interest Groups influence our elected representatives? By making “Campaign Contributions” to the elected officials Campaign Accounts. In turn these elected officials provide time to those very same contributors so they can persuade the elected official why a change should or should not be made in the tax code. This is why the tax code changes every year and is so complicated that even the Tax Experts within and outside of the IRS can’t understand it. This is why the entire tax code is more than 44,000 pages and has more than 4 million words. I profess that not one single individual has ever read the entire tax code and if they had, it would be impossible for them to understand it. By allowing these frequent and often contradictory changes to the tax code we provide very fertile grounds for suspect intervention and outright corruption. Of course we could always attempt to pass a law prohibiting these contributions or the total elimination of Campaign Accounts but does anyone really believe this will happen? And if it did happen we can be sure someone would find a way to either circumvent the rules or find a new way of “influencing” our elected representatives. But the Fair Tax would eliminate all, or certainly most, of this influence peddling and temptation for Congressional corruption. By completely eliminating our current tax system and substituting the Fair Tax the entire system would be reduced to a mere 131 pages. Most importantly the only “fiddling” an elected official could do would be to pass an adjustment to the tax rate and this would require a super majority of 2/3rds in both houses to pass an increase in the tax rate. Something exceptionally difficult to do. Of course it will only take a majority to pass a reduction in the rate. As the Fair Tax applies to all products and Services exactly the same way there is no longer an opportunity for any one Special Interest or Corporation to obtain a unique advantage thus no reason for Lobbyist or others to attempt to bribe or unduly influence an elected representative. This will go a long way to help improve the ethics of our representatives. One of the other advantages is that the Fair Tax levels the playing field for all individuals and companies. No longer will anyone be able to obtain an unfair advantage by influencing an elected representative to make changes in the tax code. This will be of particular advantage to small businesses and start-ups that are the driving force behind employment and job growth.

7. Empower the American Citizen to manage and budget their own money to aid in the economic recovery and increase individual liberty and freedom – Implementing the Fair Tax will mean the elimination of all tax withholdings from pay checks. It also means the elimination of capital gains taxes, the death tax and every other tax currently assessed by our government. The Fair Tax increases take-home pay by at least 25.3 percent for every worker. In its simplest form this means a person being paid the equivalent of $10.00 per hour will see an increase in their take home pay of approximately $101 every week/$5,252 per year! If the individual earns the equivalent of $25.00/hour the increased take home pay will be an additional $253.00 every week/$13,156 every year! This is money each person/family can choose to use as they determine best for themselves and/or their family. Implementing the Fair Tax also means real returns on investments will be greater by at least the current capital gains tax level. But real return will actually be more than the current capital gains rate as eliminating the capital gains tax the investments will grow tax free thus will grow at a compounded rate compared to our current tax system. This will encourage further investment in businesses, which will result in more job growth. But for the individual the Fair Tax means he/she gets to keep 100% of what they earn each and every week. This gives the individual the right to choose how to spend or invest his/her money without concern for government incentives or punishments. If the individual chooses to save some, or all, of the additional payroll money they receive it would be “pre-tax” dollars and all returns on their savings will be tax-free. This will have a significant positive impact on the national savings rate and improve individual financial security. But the real advantage is that by implementing the Fair Tax individuals will now have the ability to make choices they currently don’t have and the freedom to use all of the money they earn without having to make an “interest free” loan to the government in the form of withholding taxes that can only be returned the following year if they are able to fully understand the tax code and calculate their taxes to where they receive a “refund”. The Fair Tax will be particularly beneficial to the poor and those on fixed incomes including seniors. By eliminating all of the current taxes seniors will no longer be required to pay income tax on their Social Security benefits. This also means those receiving disability payments will not be taxed. Additionally, The FairTax rebate zeros out the retail taxation of necessities, up to poverty level spending, for seniors and the poor. The FairTax also ends gift and estate taxes, along with all of the unfairness to heirs and complex planning for those who earned the money not only assuring they and their families can keep what they’ve earned but also eliminating so much of the cost burden associated with estate planning and tax preparation. The other major advantage of the Fair Tax is it will provide in immediate stimulus to the severely depressed housing market as existing homes will carry no tax burden making them more appealing and, perhaps, increasing their value. (Under the Fair Tax there is no tax on existing products such as homes, automobiles, etc.. The tax is applied only to the sale of new products to the end user.) Bottom line, the Fair Tax will finally get the Federal Government out of the decision making process of what individuals do with their own money!


8. Increase the value of the US Dollar to assure it remains the primary base for International trade and worldwide economic stability – The Fair Tax will assure the US Dollar remains the base currency for international trade. By once again making us the largest manufacturer of products, increasing exports, expanding our job base and increasing wages of every worker and investor dollar will increase in value buying more goods and services for the same dollar amount. Currently, the average combined federal and state Corporate Tax Rate in the U.S. is 39.3 percent, second among OECD countries with Japan's combined rate of 39.5 percent making them the country with the highest corporate taxes. Eliminating the Corporate income tax will move the US from the position of being the 2nd highest to being the lowest resulting in increased investments in US Corporations and manufacturing plants. By eliminating all investment related taxes international investors will be incentivised to increase their investments in US corporations thereby increasing the total capital market. This will further expand growth of both existing and star-up companies and further expand the job market within the US. By stabilizing our tax structure the US will become the preferred investment country, as investors will have a much more stable, predictable, investment climate. Combined, these benefits will strengthen the dollar and continue to make the dollar the base currency for international trade. The dollar value will be further enhanced by the reduction in US Debt and our proven ability to pay for all currently unfounded debt. This will make the US Dollar the strongest and most attractive currency in the world market. While this may not immediately appear to be important to individuals the resulting lowering costs of imported products will soon become apparent as individuals shop for goods and services. Their earned and saved dollar will be able to purchase much more than it can today and what it is expected to be capable of purchasing in the foreseeable future without the Fair Tax. With the Fair Tax US markets will grow, exports will expand, job growth will expand and our tax structure will stabilize making the US Dollar once again the strongest currency in the world and the foundation for worldwide economic stability and growth.

The US is faced with undaunting challenges but these challenges can be overcome. The Fair Tax is the basis for our future economic security and renewed liberty.

If you too believe the Fair Tax is the solution to our financial crises then I encourage you to contact your elected representative and demand they sign on as a co-sponsor of the Fair Tax Bill and vote for its passage. Only with a ground swell of support will the Fair Tax become a reality. HR 25 has 25 Co Sponsors. When introduced it will need at least 220 to assure passage with a minimum of 51 co sponsors of the Senate when it is introduced in January. Our elected officials must realize their support is critical to both the welfare of our country and their future employment!