Pay Uncle Sam At The Point Of Sale
March 12, 2009 by Lela Davidson
Filed under Finance
The United States tax code is complicated, subjective, and highly political. Is it in need of an overhaul? One group thinks so and they’re presenting a solution.
Flickr Image: Consumerist
FairTax.org promotes a national retail sales tax as a healthy alternative to the income tax system. They want to see every worker take home their whole paycheck, without federal withholding or payroll taxes deducted. These bigger paychecks permanently stimulate consumer spending, and struggling homeowners can pay mortgage obligations — without massive taxpayer bailouts. Federal taxes would be paid at the cash register only at the point of final retail sale. And corporate and capital gains taxes would be completely eliminated under their plan.
“We have seen the uncertainty, fear and anger in the investor community as stocks have been battered and credit markets frozen. The very foundations of our free market system have been shaken, both from the economic crisis and the proposed solutions,” said FairTax.orgspokesman, Ken Hoagland. “We believe that the FairTax can reverse our economic downward spiral almost immediately. It offers a constructive and positive path out of this crisis and one that does not require even more government debt.”
Strong words. Here are some of their assertions:
- The income tax system makes politicians powerful and lobbyists rich, and undermines the very things that make our economy strong.
- We ought to tax what comes out of our economy — consumption — instead of what goes into our economy — work, savings and investment.
- FairTax replaces every penny now raised, broadens the tax base and is simple, fair and transparent.
- Low-income and middle class Americans get permanent relief.
- The FairTax “prebate” eliminates all federal taxes on the poor and provides significant tax reductions to the middle class.
- Jobs are created when hidden income and payroll tax costs are eliminated from hiring decisions.
- The “Made in America” label roars back when foreign producers selling goods and services in our markets no longer compete against American companies saddled with these costs.
- Consumers become “stakeholders” when taxes are visible and no longer hidden from wage earners. This means real consumer pressure on politicians to reduce spending.
- The FairTax ends seeing as “free money” that which is borrowed against our earnings and the future earnings of our children and grandchildren.
Wow. I’m not sure what kind of point-0f-sale tax would eliminate taxes for the poor, unless they’re living off the land.
What do you think of this new spin on taxes?
Will America ever de-politicize taxation?
re: untaxing the poor
As I understand it, under fair tax there is a tax credit (on even the consumption (retail) tax) similar to current exclusions that provides for cost of living necessities (food, clothing, shelter, basic education) up to a point; that’s how it takes taxes off the poor. Say you are a family of four earning $40k these credits might be enough to exclude the entire earnings unless you chose to spend on cars, vacations, TVs, et. al outside the necessities.
re: the Rest
Somethings, maybe even most things, will cost more, but components of Fair Tax offset those most in demand. Theoretically at least, by the efficiency law of competitive supply and demand, prices may drop nearly the amount of the tax on volume items. The lack of “tax overhead” in the production of goods and services lowers costs on commodities and big ticket items alike substantially- lack of payroll taxes, social security and deductions reporting lowers operating costs; there is no internal compounded tax on parts to make the product (e.g. cars are only taxed once at sale, not for every cumulative part that is assembled in every plant that makes them by every taxed manager and worker). Companies no longer carry the overhead of withholding, keeping complex tax records, tax planning, tax preparation. New homes are taxed once – not every sink, toilet, shingle, load of lumber, sub-contractor – the price paid appears higher up front (by the tax amount) but actually is less over the life of the loan. All of these “efficiencies” and expense reductions reduce the costs that are now passed to the consumer potentially offsetting a portion of the tax.
All workers receive the full value of their work – 100% of their paycheck (can choose to participate in company health and retirement plans or find their own in a more competitive economy), and there is an allowance for cost of living (earners and dependents – remember, most Americans do not work, but all spend) that offsets some of the retail tax. Above the cost of living Americans then invest in their government by spending. There is a built in incentive to save and be frugal (buy necessities at the best price). Goods are taxed only once e.g. new homes, new cars. Value of used cars and home actually goes up a little as they now are tax free commodities (a real incentive for new products to be MUCH better in quality AND service).
By the way, under fair tax the tax rate is designed as neutral (social security, medicaid percentages et.al. are funded (and protected-read visible) at point of sale; it doesn’t fall, just becomes visible to the consumers of both products and government services. I have had a real problem looking for issues with this tax system. Our government is constrained because everything is visible and on the table. A tax increase isn’t subtle it is in your face.
A huge problem for Washington (and any potential for adoption of the Fair Tax) is that control actually goes to the people (lobbyists and professional politicians lose tremendous amount of power and control over the people and their money). Imagine the current situation: the public doesn’t like the massive bailout and chooses to stop spending on anything other than necessities and goods and services which THEY CHOOSE to support.
Another huge plus is that in a Fair Tax country there is much less incentive to go offshore with big business. Americans will be able to better compete in the world market. Especially in the area of intellectual property and innovation (eliminates the tax considerations entirely – doesn’t address labor costs or to market efficiency but one step at a time). Gives business a huge weight off the shoulders and complete focus on growth and profit (jobs & investment).
Talk about stimulus – imagine getting all of your paycheck or all of your profits for the first time in anyone under 70’s life. Yes, some things cost more, you still have to be selective, protect the environment and the unfortunate.
Is that a beautiful country or what? The Fair Tax deserves everyone’s serious consideration regardless of their affiliations. (with the possible of the IRS, tax preparers and planners, lobbyists, political influence peddlers, criminal and underground cash enterprises – these groups have a lot to lose).
Americans seem to have a lot to gain without compromising government by the people.
The average American can actually read and understand the seventy or so pages that culminate many years of work. Contrast that with the current Tax Code hundreds of thousands of pages that is meaningless without the zillion pages of tax court decisions that actually interpret the unintelligible intent of the Code itself.
I like the Fair Tax’s simplicity, fairness and incentives to do the right things.
I’ll climb down off my soap box now ;)
Thanks for your thoughtful comment. I suspect this is something that will be debated much.
After doing my taxes last night, I’d love a system where I don’t have to transpose about a gazillion numbers into little boxes!