Sunday, April 24, 2011

Dennis Calabrese and Mike Papantonio debate the FairTax

In this video aired on Fox Business, Dennis Calabrese and Mike Papantonio debate the FairTax bills that have been introduced in Congress. The FairTax bills (H.R. 25 and S.B. 13) propose a national sales tax on new goods and services to replace the current personal and corporate income tax. Businesses large and small would be exempt from paying the FairTax if the purchase is for business purposes. As part of the FairTax, all households would get a prebate (a rebate paid in advance) every month for sales tax paid for purchases up to the poverty level for that size of household. The FairTax bill also calls for the repeal of the16th Amendment, the constitutional amendment that authorized the federal income tax.

Dennis argued for the FairTax and Mike argued against it. Mike used an example of a person making $15,000 per year who wants to buy a car and that the tax on the car purchase would eat up that person’s buying power. Dennis counterargued that the FairTax eliminates the corporate income tax that gets passed on to its customers. As a result, car manufacturers and dealers would be able to pass that savings on to their customers in the form of lower sticker prices.

I agree with Dennis’s counter argument and have an additional counter argument of my own that I would like to share. In reality, most people who make that small amount of income buy used vehicles for transportation, because that is all they could afford. Since purchases of used goods are exempt from the FairTax, that person would not have to pay any FairTax if the car purchased was a used car.

I believe that the current personal income tax and corporate income tax systems has hurt and continues to hurt the economy in the United States. It discourages productivity by taxing the income progressively. It encourages borrowing and spending and by granting deductions for purchases, contributing to the current credit crisis. It encourages corporations to keep their profits on overseas operations out of the United States to avoid taxation on those profits instead of bringing profits back to the United States where it could be used to create jobs in the United States. Finally, it requires a lot of resources to administer and enforce.

I favor the FairTax because it encourages productivity and discourages spending, allowing more Americans to save money. The FairTax eliminates the corporate income tax, encouraging corporations to locate their operations into the United States and create jobs. The FairTax also requires a lot less resources to administer and enforce since only businesses would be required to file tax returns.

Please let your Representative and Senator know that you support the FairTax bills.

Friday, April 15, 2011

CNBC Documentary Shows Problems with Income Tax Compliance and Enforcement

Last night, CNBC aired The American Tax Cheat, a program produced by CNBC and hosted by Becky Quick. The documentary showed how huge of a problem tax evasion is and how easy the tax code can turn otherwise law abiding citizens into criminals by evading taxes. According to the documentary, as much as $300 billion dollars goes uncollected every year due to tax evasion.

The documentary mostly showed the IRS going after individual citizens. Some of those citizens flat out refused to pay income taxes while others relied on tax professionals that used illegal methods. Either way, the citizens that were caught were penalized severely.

The documentary also mentioned how complex the tax code is, that many taxpayers do not understand the tax code, and that the tax preparation industry rely on the complexity of the tax code. The cost of a professionally prepared return averaged $245, according to the documentary.

The documentary clearly shows the need for the FairTax. The FairTax bill (H.R. 25 and S.B. 13) proposes a national sales tax on new goods and services to replace the current personal and corporate income tax. As part of the FairTax, all households would get a prebate (a rebate paid in advance) every month for sales tax paid for purchases up to the poverty level for that size of household. The FairTax bill also calls for the repeal of the16th Amendment, the constitutional amendment that authorized the federal income tax.

The FairTax compels everyone (citizens, tourists, undocumented persons, and even criminals) in the United States to pay taxes without requiring them to fill out forms. The businesses would collect the tax and submit it to the government. If businesses don’t, the business would be held responsible, not their law abiding customers.

Because individuals won’t have to fill out forms, they won’t have to pay professionals to pay taxes. That money would be better spent taking the family to a ball game, amusement park, or pay other bills.

Monday, April 4, 2011

Rep. Rigell is now an H.R. 25 co-sponsor

Rep. Scott Rigell (VA 2nd Congressional District) added his name to the co-sponsor list for the FairTax bill (H.R. 25). That bill now has one sponsor and 58 co-sponsors. The Senate version (S. 13) has one sponsor and six co-sponsors.

National Small Business Association Endorses FairTax

The National Small Business Association (NSBA) has issued a statement on their website endorsing the FairTax. In the statement, NSBA endorsed the FairTax for the following reasons:

  • “The current U.S. income tax system discourages personal savings and investments by taxing capital gains, dividends and earned interest. Business owners and wage earners struggle under the burden of a very regressive payroll tax.”

  • The FairTax replaces the individual federal income tax, the capital gains tax, all payroll taxes, corporate income taxes, the self-employment tax and the estate and gift taxes.

  • The income tax is “unbelievably complex, time consuming, and costly to administer”. The FairTax, on the other hand, would reduce the cost of compliance for Americans from $225 billion to less than $10 billion.

  • Business-to-business purchases for the production of goods and services would not be taxed.

“NSBA supports fundamental reform and looks forward to working with supporters of the Fair Tax to educate taxpayers about the proposal,” according to their statement.

Saturday, March 26, 2011

GE Has No Tax Liability for 2010 Despite Profits

The New York Times reporter David Kocieniewski reported in an article that General Electric had a profitable year in 2010--$14.2 billion in profits including $5.1 billion from its U.S. operations. The real point of the article, though, is the fact that GE did not owe any income taxes on any of those profits and instead claimed a $3.2 billion tax credit.

According to the article, GE achieved this by executing “an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore,” which pretty much means what happens outside of the United States stays outside of the US. GE’s tax department staff includes former US Treasury, IRS, and congressional tax-writing committee officials.

GE should not be looked at as a villain. As a public corporation, GE has a fiduciary duty to its shareholders to find lawful ways to reduce their tax liability.

In fact, I thank GE for demonstrating the evil’s with the US tax code. GE’s tax strategy exposes these negatives in the tax code:

  • Tax code discourages repatriation (bringing offshore profits stateside). By keeping cash profits offshore creates jobs and investments overseas instead of in the US. Conversely, bringing cash profits to the US can create jobs and investments in the US.
  • GE’s size gave them more opportunities to arrange their finances to avoid tax liabilities. Their smaller competitors do not enjoy those same opportunities and, consequently, pay up to 35% of their profits in income taxes.
  • Companies spend money complying with the tax code and lobbying for tax breaks. Money spent on such activities is money passed on to their customers.

The FairTax fixes those problems. The FairTax allows repatriation without any tax liability, creates a favorable tax environment to locate business operations in the United States, levels the playing field for smaller competitors, and drastically reduces spending on tax code compliance.

Friday, March 4, 2011

Response to a Naysayer Blog

This is a response to the Fairtax Spokesmen Explain Their Hidden Tax blog that acts like it is exposing a trillion dollar hidden tax. The blogger, "Seeker", recently commented on one of my posts. That tax is referring to the fact that all governing bodies(federal, state and local governments) are not exempt from the FairTax. That means merchants and contractors will have to collect the tax for goods and services provided to state and local governments. I never intended to hide or deny this fact. So, for really full disclosure, non-profits are also not exempt.

Under the FairTax, government contractors would be exempt from the FairTax. Not only that, but they nor any other business would have to pay income taxes or federal payroll taxes (social security, medicare, federal unemployment taxes). This allows businesses to price their goods and services more competitively, especially when bidding in government competitive bid contracts. In fact, research while developing and drafting the FairTax proposal found that 22% of the prices we pay for goods and services go towards taxes that manufacturers, distributors, and retailers have already paid to bring the products to market.

Now, I doubt that the contractors would be able to lower their bids by 22% if the FairTax was in effect; therefore, the governing bodies may end up paying more under the FairTax. That, though, could be a good thing if it forces those governing bodies to be more careful spending OUR money.

One thing that the blogger, who used the name “Seeker”, failed to mention was that even governments would not have to pay payroll taxes (social security, medicare, federal unemployment taxes) on wages that they pay to its employees. For most governing bodies, wages are a major part of their budgets. So, this will provide some relief for governing bodies.

There some are parts of the FairTax that I don’t like, and there are other parts that others don’t like. I know one part that Seeker doesn’t like. All in all, though, I like the FairTax and still support it.

The Fair Tax -- At Least Worth a Debate?

Here is a comment I made in response to article The Fair Tax -- At Least Worth a Debate? on The Huffington Post.


Thank you for writing about the FairTax. While I don’t agree with your conclusion­, I commend you for explaining the FairTax in an unbiased manner. The FairTax indeed favors the low and middle class thanks to the prebate and eliminatio­n of wage earner FICA contributi­ons. True, the FairTax will hurt the tax preparatio­n industry thanks to the complicati­on of our current tax system, but we citizens shouldn’t have to have the extra burden of hiring someone to do our taxes. Some really hate hiring someone only to learn they owe Uncle Sam even more money. As a former tax preparer myself, most of my clients were low and middle income that could hardly afford the $50 on up fees that my firm charged to do their tax returns.

Since one of the FairTax provisions is to repeal the income tax, these punch clock workers won’t have to file tax returns. The businesses still have to, but many already do because they have to remit collected state sales tax. Clearly, the FairTax needs to be implemente­d.

Wednesday, March 2, 2011

FairTax favored over Flat Tax at the Tea Party Patriots American Policy Summit

Last weekend was the Tea Party Patriots American Policy Summit. Obviously, one of the event topics was taxation, and both the FairTax and Flat Tax proposals were discussed. The FairTax is consumption based (sales tax) and offers a monthly rebate to all households where as the Flat Tax is one flat rate (one tax bracket only) on excess income.

During the summit, a “straw poll” was taken. According to Fair Tax Nation, the FairTax was favored with 52% of the votes. The Flat Tax received 15% of the votes.