Chairman’s Report – June 21, 2019

The Tariff Penalty Caused By The Present Tax System
The Merriam Webster dictionary defines tariff as a:  1.  Schedule of duties imposed by a government on imported or in some countries exported goods;  2.  Duty or rate of duty imposed in such a schedule.

Tariffs are used to raise money for governments, but often they are used to increase the prices of imports competing with domestic producers.  Sometimes they are used for political purposes to ensure foreign governments treat a country’s imports fairly.
For example, President Trump believes China has serious restrictions limiting U.S. exports to China while taking advantage of U.S. policies largely unrestricted on China’s exports to the U.S.
By increasing tariffs on China and others, many are concerned the new tariffs will increase the prices of what most Americans buy.
In a 6/7/2019 article published in Bloomberg News entitled Trump’s Tariffs Have Already Wiped Out the Tax Savings for Average Americans, Laura Davison makes a number of predictions if the tariffs are continued.  Here are some:
  • According to the Urban-Brookings Tax Policy Center, middle earners saved an average of $930 in the 2017 tax reform bill.
  • The tariffs already put in effect by the President cost the average household about $831, according to the New York Federal Reserve, all but $100 of the savings.
  • If Trump does impose another $300 billion in Chinese tariffs, this will increase the cost for an average family of 4 to about $2,294 annually.

Tariffs & The Cost Of Goods
Sometimes opponents of tariffs, like Ms. Davison, argue each 1% increase in tariffs will lead to a 1% increase in consumer prices.  However, like most things in the real world, this isn’t the case.
  • For example, a manufacturer in China sells a mobile phone to a U.S. mobile company for $300.  The U.S. company will sell the phone to a U.S. consumer for $600.
  • If there is a 10% tariff imposed, the U.S. company will have to pay $330 for the phone.  Then, assuming competition allows it, the U.S. company will sell the phone for $630 to the U.S. consumer.
  • In most cases though, competition will adjust the prices charged to the U.S. company and to the U.S. consumer.
  • There is a growing manufacturing base in many other Asian countries who are competing to take business from China.  In fact, Foxconn, the company assembling the iPhone, has assured Apple it will move its assembly operations to another country if the tariffs become too costly.
  • The Chinese manufacturer is making a profit at the $300 selling price.  Is the profit enough to allow it to absorb the $30 tariff?
  • Obviously, the manufacturer will not want to absorb all of the cost and will try to negotiate with the U.S. company for it to absorb some of the cost of the tariff.
  • If the U.S. company decides it cannot raise the price to the U.S. consumer, then the U.S. company will absorb some of the tariff cost.
  • In this case, the price to the consumer may not increase, or may increase by a few $ and not the whole $30.
The FAIRtax Difference
The main purpose of the tariffs proposed by President Trump is to force other countries, like China, to stop practices limiting U.S. imports into their country and to stop stealing U.S. intellectual property.  However, as Ms. Davison’s article predicts, there may be price increases borne, at least in part, by U.S. consumers.
Tariffs may still be needed after The FAIRtax is enacted to prevent bad acts by foreign governments, like stealing U.S. intellectual property.  Under the present income-payroll tax system, U.S. exports are punished and imports are subsidized.
This is a simple calculation.  All of our main trading partners have a value added tax (VAT).  As a product goes through the stages of production, at each stage the VAT is applied to the value added by each stage of production.
  • For example, trees are harvested and delivered to a saw mill, there is a value added (for commercial purposes) to the harvested trees.  This value of the delivered trees compared to the value of the uncut trees is taxed at say 20%.
  • When the saw mill cuts the trees into planks and they are delivered to lumber yards for sale, there is value added and this value is taxed at 20%.
  • Then when the furniture manufacturer purchases the planks and makes a table, this value added is taxed at 20%.
  • When the table is exported to the U.S., the exporter is entitled to receive a refund of the total VAT paid, 20% of the final cost, and it comes to the U.S. at a price 80% of what it would cost if purchased in the manufacturing country.
  • When the table arrives in the U.S. in almost every case, there is no tax on the imported table.
  • The U.S. company pays taxes, but only on the net profit it obtains from its business operations, not on the value of the imported table.
This is in stark contrast with how we treat our exported goods:
  • The U.S. exporter isn’t refunded the accumulated costs of the U.S. tax system, estimated 15-20% of the product’s cost.
  • This means the U.S. product’s price goes to the other country at its FULL, disadvantaged price.
  • When it arrives at the other country, the country "slaps" on its VAT and this increases the price, often 20% higher than the competing foreign product.
  • This 15-20% “penalty” on U.S. goods increases the likelihood U.S. companies cannot produce products in the U.S. at a competitive price.
  • This reduces U.S. employment and generally results in lower-paying jobs for people who deal with the imported goods.
The FAIRtax changes this dynamic.  Because The FAIRtax is only imposed at the retail level, U.S. manufacturers aren’t required to include the 15-20% increases in price caused by the payroll-income tax system.
Imports find, like in their own country, they are also subject to The FAIRtax when sold in the U.S. at the retail level.  This means they no longer have the competitive advantage to sell in the U.S. at 80% of the price at which they sell in their own country.
Under The FAIRtax, U.S. made products are more competitive with imports.  This leads to an increase in U.S. production and creation of more high paying jobs in the U.S., not in another country.
By equalizing the tax treatment of imports and exports, like all of our trading partners do now, we eliminate the need for most tariffs.
President Trump says he is standing up for America.  It’s more sensible to not cause other countries to impose retaliatory tariffs on U.S. imports, when the real solution is so much simpler.  Replace this nightmare called our income tax system with The FAIRtax.  Yes, there will be howls of protest from countries who have been taking advantage of our terrible and broken income-payroll tax system.   We say to these countries who suddenly have lost the competitive advantage they enjoy under the income-payroll tax system, “We are only doing what you do”.
How can anyone not say, “It is time to pass The FAIRtax, the only fair tax!”

The author George Bernard Shaw said, "You see things; and you say “Why”.  But I dream things that never were; and I say “Why Not”.
We say to you President Trump, “Embrace The FAIRtax and 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!  Pass The FAIRtax Now!
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Read Evasion Study Summary
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Episode #165 Questions, More Questions & Answers

As you saw in the last 2 episodes of FAIRtax Power Radio, our trip to Oklahoma State University in May generated a list of 112 questions by the grad students in Professor Sarah Johnson’s class.  In this episode, The FAIRtax Guys decided to respond to several more questions on this list as well as comments and suggestions from some of our listeners.  Tackling these questions helps to make the case for The FAIRtax.
  • Under The FAIRtax, what happens when the economy goes into a recession?  
  • Will the government control how the Prebate is spent ensuring it is spent on necessities?
  • How will lottery winners be taxed under The FAIRtax?
  • Can the President implement The FAIRtax by executive order?
Great questions by the OSU grad students and our listeners make for another informative episode of FAIRtax Power Radio/TV.
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!
Steve Hayes
Chairman, Americans For Fair Taxation

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