Chairman’s Report - February 21, 2020

How Much Do You Actually Pay Under The Income-Payroll-Tax-System?

The truth is no one really knows.

Even with the most sophisticated computer, it’s very unlikely anyone can calculate exactly how much the income-payroll-tax-system costs them.

Most people will disagree and say, “Of course I know how much I pay in federal income and payroll taxes.  It’s right there on my W2, or I just look on my tax return”.

That is exactly what “The Ruling Class” wants you to think.  But the sad fact is your W2 and your federal-income-tax return only reveal part of what you pay under the income-payroll-tax-system.
The true measure of a tax system is how much does it reduce your spendable income.

Here are some basic facts almost everyone can agree on:
  • All income you earn is going to be used for either present or future consumption
  • Spendable income is reduced by both your tax liability and by any expenses a tax system passes along to you

If you accept these points, then the true measure of any tax system is how much of your total earnings do you have remaining for consumption after you have deducted your tax liability and any system related expenses.
What Are Some Of The Expenses
Attributable To A Tax System?

Some basic facts about businesses:
  • A business has to bring in more income than it pays out in operating expenses or it can’t stay in business
  • A business’s expenses include the amount of federal-income-payroll-tax it pays, plus any amounts paid to accountants and tax attorneys who make sure the business is in full compliance with the tax laws
  • Although often forgotten, the expenses also include any costs of the tax system embedded in the prices of goods and services purchased from other companies

For example, if a company purchases tires for its vehicles, one factor in the price of those tires is the tax liability and compliance costs imposed on both the tire manufacturer and the vendor selling them.  The amount added to the price of the tires to cover those costs represents a cost of the tax system to the company buying the tires.

Competitive forces in a free marketplace can make it difficult for a company with high expenses to set prices high enough to cover those expenses.  In those cases, companies must find ways to reduce expenses in order to stay in business.  This generally means businesses in this situation will look to reduce labor costs, or reduce the amount of money distributed to the business’s owners.

Unlike the federal government, a business can’t print money and if it borrows more than it can pay back, it will eventually be forced out of business by its creditors.

Let’s look at a company harvesting timber which it sells to a lumber mill.
  • The company has $100,000 in expenses for things like office rent, materials, telephone service, vehicle expenses, insurance, internet, and related items
  • The business has 5 non-owner employees who are paid a total of $300,000 in salaries
  • There are 2 owners who each receive $75,000 in salary for a total of $150,000
  • The 2 owners each want to receive an additional $25,000 of profit distributions for a total of $50,000
  • Finally, the owners want to put $25,000 per year into a reserve fund for future investments and as a cushion against unexpected expenses.  This will remain in the business as working capital but will not be an income-tax deduction for the company
  • The effective federal-income-tax rate for the company is 20%.  This means for every dollar of profit, the business will pay 20 cents.
  • The total of all of these expenses, not including the income-tax, is $625,000
  • Additionally, the company must pay the matching 7.65% of the $450,000 in wages as the employer’s share of payroll-taxes.  That’s another $34,425.  Since this is a tax deduction for the company, the company will only pay $27,540 of actual costs and the balance will be federal-income-tax savings
  • This brings the new expense total to $652,540
  • There is one additional cost of the income-payroll-tax-system to be added.  Because the reserve fund is not an income-tax deduction, the actual cost of that item is not $25,000 but $31,250.  That’s how much the company has to earn in order to net $25,000 after paying federal-income-tax of $6,250  
  • This brings total expenses up to $658,790
  • The company has to make $658,790 not $625,540, an additional $33,250 or an additional 5.3% just to cover its expenses

Of course, in a perfect world, the company would increase the price of the timber it sells to cover all of the direct and indirect costs added by the federal income-payroll-tax-system.
This is why many economists believe the actual cost of the income-payroll-tax-system added to the retail prices of the products and services we buy, is between 10% and 15%.
Tax System & Spendable Income

Let’s look at the effect of the income-payroll-tax-system vs. The FAIRtax as applied to a family of 4 earning $60,000 in wages and spends all $60,000 on new goods and retail services.

Federal Income-Payroll-Tax:
  • A family of 4 earning $60,000 will owe no federal-income-tax
  • However, 7.65% of $60,000 or $4,590 in payroll taxes will be deducted from their gross earnings
Net available for family to spend.

The FAIRtax:
  • If the family spends all $60,000 on new retail goods and retail services, the net available for the family to spend will be calculated as follows:
    • Calculate the effect of The FAIRtax prebate.  A family of 4 would have a Family Consumption Allowance of $34,400.  That means that $34,400 of their $60,000 in spending wouldn’t be taxed.  So, subtract $34,400 from $60,000, and the family would pay The FAIRtax on $25,600 of their spending
    • Multiply $25,600 by The FAIRtax rate of 23%, and the family will pay $5,888 in FAIRtax
    • Subtract $5,888 from their total earnings of $60,000, leaving the family a net of $54,112 to spend.

So far, it appears the family would have $1,298 more to spend under the present income-payroll-tax-system than under The FAIRtax.  This Isn’t The Case!
  • As illustrated above, the income-payroll-tax-system increases the prices of the products and services we purchase by a minimum of 5% and it’s more likely at least 10%
  • Therefore, because of the federal-income-payroll-tax, the family paid between $3,000 (5% of $60,000) and $6,000 (10% of $60,000) in additional costs directly attributable to the income-payroll-tax
  • This additional $3,000 to $6,000 directly reduces the amount left for the family to spend from $55,410 to between $49,410 and $52,410, making the family better off under The FAIRtax

Remember, The FAIRtax eliminates federal payroll and income-taxes so these additional costs will no longer be included in the prices we pay under The FAIRtax

If the income-payroll-tax-system adds 5% to 10% to the prices of everything we buy, it follows, eliminating that system would allow providers to charge 5% to 10% less and still make the same profit.

If you think providers will be greedy and not pass on the full amount of their savings realized by the elimination of the income-payroll-tax-system, let’s assume for the sake of this example they’ll pass on only 50% of their savings.

In that case, instead of having $54,112 to spend under The FAIRtax, our family of 4 will effectively have between 2.5% and 7.5% more to spend because their spendable income will purchase more.  This means the family will effectively have between $55,474 and $58,17.  Dramatically more than under the present income-payroll-tax-system.

Our example assumes all of their spending is on new goods.  However, the reality is a portion of their spending will also be on used goods.  Why is this distinction important?  Because The FAIRtax doesn't tax used goods, and therefore, they will pay even less FAIRtax, and will have correspondingly more to spend.

While it’s crazy to think we have a tax system under which no one knows what it really costs them, it’s there because “The Ruling Class” and its minions profit from it.  That is the only reason.  How do they get away with it?

In the song, Aryan Mist, singer/songwriter Van Morrison sang, “The fog of illusion, the fog of confusion is hanging all over the world”.
Although, Mr. Morrison wasn’t talking specifically about the income-payroll-tax,
the reason “The Ruling Class” and their minions in Congress
have been able to keep the corrupt and destructive income-payroll-tax-system in place is because

We The People haven’t been able to see the truth through their fog of confusion.

Why would anyone accept a system which reduces the amount they can spend on their family?

Why would anyone who understands these facts not demand a system that is better for their family?

It’s time to lift the “fog of illusion” and the “fog of confusion” which has allowed the income-payroll-tax-system to remain in place, and has allowed “The Ruling Class” and its minions to continue profiting at our expense.

It’s time to take back control of our income and our lives and demand a sane tax system to fund the U.S. government!

The FAIRtax:
  • Raises revenue for the government in the simplest and most transparent manner possible
  • Provides the prebate/tax credit to all households based on household size, and actually allows lower-and-middle-income families to have significantly more money to spend than they have now
  • Allows American businesses to be more competitive in the world market, and U.S. prices to be reduced by at least 10%
  • Greatly reduces the ability of Congress and lobbyists to extort money by selling “tax benefits”
  • Makes it much harder to single out certain groups and threaten to raise their taxes if they don’t behave
  • With The FAIRtax, there is only 1 rate and any increase would apply to everyone
  • Will grow the economy at a rapid rate
  • Will create and protect American jobs and workers
  • Ensures the sustainability of Social Security & Medicare and takes away “The Ruling Class” ability to control and take advantage of seniors
Demand Congress to pass The FAIRtax—the only “Fair tax”!

The author George Bernard Shaw said these words in a play he wrote, You see things; and you say “Why?”  But I dream things that never were; and I say “Why not?”

Isn’t it time for us to ask, “Why not?” 

President Trump, “Embrace the FAIRtax, the only Fair Tax the only fair tax and the only real tax reform!  Stand up to the Swamp.  They will oppose you anyway because they see you as a threat.  What have you got to lose?”

The truth is the truth.  Remember, if we don't continue to tell the truth and demand a change, then this quote from George Orwell's 1984 may foretell our children's future:

“If you want a picture of the future, imagine a boot stamping on a human face—forever.”

Take Back America Again!  Pass The FAIRtax Now!
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Read Evasion Study Summary
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Digital TV are available on The FAIRtax Guys

This week's Episode #200 - "What Is The Prebate?"

In their book, "The FAIRtax Book", Boortz & Linder say the Prebate is the key to fairness in the FAIRtax.  Just what is the prebate? How does it work?

The FAIRtax Guys take a detailed look at one of the most important features of the FAIRtax.  They explain why the Prebate is so important and how it makes this consumption tax progressive, not regressive.

They also address other questions.  Are there better, simpler alternatives?  Is the Prebate just another government entitlement program?  Will the Prebate require another bloated government bureaucracy?

Your study of The FAIRtax continues with this episode.  Watch the video or listen to the podcast to further your understanding of the only REAL tax reform proposal in Congress, HR 25, The FAIRtax.

As always, the AFFT is looking for Volunteers to help their efforts.  Watch or listen to see if there is some small way you can help.

There’s always more in FAIRtax Power Radio such as a reminder of the promotional items available now at Click here to visit our Store and a review of Jim Bennett’s "Grassroots Corner Report".
What Can Each Of Us Do?
Call the local and DC offices of your Representative and 2 Senators.  Use the following script:
  • I am sure Representative ____ or Senator ____ is in favor of everyone obeying the income tax laws
  • After they assure you their boss is not in favor of anyone breaking the law, ask if they are aware of the Cebula study showing $9 trillion of evaded income-payroll taxes over the next 10 years
  • Since most will say they don’t believe their boss has seen the study, drop off a copy, email a copy or click Read Evasion Study Summary and copy/paste the link into an email
  • Say you are going to call back in a week and ask what the Representative or Senator is going to do to stop this evasion
  • In a week, call back and ask specifically what the Representative or Senator is going to do to enforce the law
  • They probably will say their boss believes simplifying the income tax will handle the problem
  • Explain, when people evade income taxes, they are also evading the 15.3% payroll/Medicare tax and state income tax.  So, it’s unlikely they are going to pay 30-40% when they were paying 0% because they have already decided it’s okay to cheat
  • Say, the only way to reduce evasion is to increase by tens or hundreds of thousands the number of comprehensive IRS audits done each year
  • Point out Evaders do not self-identify by putting an “E” on their income tax return
  • 80% of the people likely to be audited are trying to comply, but they will be forced to endure these IRS audits as well
  • Ask if the Member is in favor of this?
  • If they say no, then ask again how the Member proposes to stop people breaking the income tax laws
  • Then explain the way to handle evasion without unleashing the IRS audits is The FAIRtax
  • If you meet with your Representative or attend a town hall and ask these questions, you will be even more effective  

American's Big Solution - The FAIRtax Primer America Needs
Hard to believe but there still are people who have not heard of The FAIRtax.  For those people, America’s Big Solution provides a starting point in their study of The FAIRtax and is meant for any age.
America’s Big Solution is an introduction to The FAIRtax written by Terry Tibbetts, author of “A Spartan Game: The Life and Loss of Don Holleder”, with help from Ron Maiellaro, President The Florida FAIRtax Educational Association.  You can buy an electronic version for only $2.99 for the Amazon Kindle, the Barnes & Noble Nook and Apple iOS.  You can purchase a print copy at the same Amazon link above for $9.25.
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Thank you for staying FAIRtax strong!
Yours In Liberty!   Yours In Freedom!

Steve Hayes
Chairman, Americans For Fair Taxation

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