Chairman’s Report - March 6, 2020

Foreign Investment

SelectUSA is a federal program under the Commerce Dept. whose purpose is to “promote and facilitate business investment in the United States” (no comment on the constitutionality of this program or the agency).  The agency has produced a fact sheet which discusses the amount and importance of foreign direct investment, or “FDI”, in the United States.
  • There is more FDI in the U.S. than in any other country  
  • 7,357,700 U.S. workers were employed by foreign-owned firms in 2017  
  • Foreign-owned firms in the U.S. invested $62.6 billion in R&D  
  • Foreign-owned businesses accounted for $382.7 billion in U.S. exports  
  • In 2018, over 50% of the FDI was from the United Kingdom, Canada, Japan, Germany, Ireland, France  
  • Only 1.4% of the FDI in 2018 was from China

These numbers don’t reflect the amount of “black money” invested through off-shore entities existing to hide the source of the money not only from the U.S. but from their own country of origin.  However, they do illustrate how important foreign investment is to the growth of the U.S. economy.
The Biggest Barrier To Foreign Investment Is
The Income-Payroll Tax-System

As shown on the IRS site, the U.S. has a number of tax treaties with other countries.  These treaties  govern the tax treatment of investors residing in the U.S. who make investments in foreign countries as well as residents of foreign countries making investments in the U.S.  Basically, these tax treaties provide foreign investors be taxed in a way similar to the way a U.S. resident would be taxed in the same investment.

Of course, these tax treaties apply only to the federal-income-tax and any U.S. state with a state-income-tax is not bound by the terms of the treaties.

About 70 countries currently have tax treaties with the U.S., but only Mexico and Venezuela in Latin and South America currently have tax treaties in place.

As anyone living in Florida or other southern states knows, there are many people in Latin and South America who want to invest in the U.S. but, because of the lack of a tax treaty, they are often forced to invest and pay very high income-taxes both in the U.S. and in their own country.  These income-taxes greatly reduce the net return to these investors, and are a significant deterrent to investment.

Most foreign investment is made through a U.S. corporation created by a foreign investor.  Even investors from countries with whom the U.S. has a tax treaty are still paying federal-income-taxes. In many cases these taxes are at a higher rate than U.S. citizens pay.
A regular corporation has investment returns taxed at the corporate rate of 21%, and then the money is taxed again as ordinary income when it is distributed as dividends to the owners of the corporation.  This creates a situation where income-taxes reduce the investment return by 40% to 60%.  When the 79% being distributed is reduced by another 40% in ordinary income-taxes, the investor is left with a net of just 47.4% of what was originally earned.

This is why most U.S. investors and small business owners use Subchapter S “pass-through” entities which means the corporation’s income is not taxed at the corporate level, but is taxed only at the individual owner’s level.  (Subchapter S is the title of the provision of the income tax code dealing with these corporations).  

This means by using a Subchapter S corporation, 100% of a corporation’s earnings are taxed only at the individual level.  Assuming a 40% income tax rate, the individual would have 60% of the amount of corporate earnings and not 47.4%.

The problem is if you are a foreign investor from a country with no U.S. tax treaty, you cannot take advantage of the provisions of Subchapter S.

"Tax Reform Presents Opportunities for Foreign Investors in U.S. Businesses" is the title of an article written by Seth Entin for the Holland & Knight law firm.  The article explains how a foreign investor from one of the countries which doesn’t have a tax treaty with the U.S. can take advantage of U.S. tax law by becoming eligible for Subchapter S treatment.  The foreign investor can combine portions of the U.S. tax code with a provision of the 2017 tax act which almost no one else has ever heard of.

Of course, this benefit comes at a price.  You have to hire sophisticated tax advisers like Mr. Entin and his firm to create “electing small business trusts”  which will own shares of a corporation, thus allowing the corporation to elect Subchapter S status.

Complicated?  Of course!  But this provision further enriches tax professionals and makes the income-tax-code even more difficult.  It’s also, like the rest of the income-tax-code, totally unnecessary!
As we know, the way you calculate the rate of return on an investment is to look at what the investment yields to you after paying any applicable income-taxes.  If there is a 10% return but the effective federal tax rate is 30%, then the return is not 10% but instead 7%.

The obvious question is why would anyone seeking foreign investment in the U.S. continue to support the Income-Payroll-Tax-System punishing foreign investors?  The reason is obvious, “The Ruling Class” and their minions want to retain their control over us, and they want to keep their income stream flowing.

Anyone who thinks they are maintaining the Income-Payroll-Tax-System for any other reason is DELUDING themselves.
Just because you can’t conceive of someone being evil, doesn’t mean these evil people are not out there.

The Real Solution:  The FAIRtax

If you are a foreign investor looking at the complicated morass of income-tax-laws in countries around the world, you evaluate a number of factors to determine where you want to invest.

In many cases the safety of the investment is more important than the return on the investment.  They follow the maxim stated by Will Rogers, the cowboy philosopher of the last century who advised, “Don’t worry as much about the return ON your investment as the return OF your investment”

In other cases, foreign investors will look at factors like the exchange rate of their currency related to the currency of the country in which they are considering investing.  If the currency of their country, like the currency of Venezuela, is rapidly losing value, then the idea of investing in a country with a more stable currency is very attractive.

These and other factors are why the U.S. is attracting so much foreign investment.  However, how much more investment could be attracted to the U.S. if investors were receiving not 50%-60% of the return on their investments but 100%?

With The FAIRtax, no citizen or foreign investor would ever have to hire expensive tax professionals.  With The FAIRtax, there is no fear “The Ruling Class” and their minions will eliminate a tax benefit or dramatically raise the income-tax-rates and confiscate their money.

This is why The FAIRtax will create a huge increase in foreign investment in the U.S.  This investment will lower interest rates and make more money available to small business owners.  Many more jobs will be created, and the competition for labor will create higher and higher incomes for everyone in the U.S.

And, this increase in income will create more retail consumption and result in more income to the U.S. Treasury.

The above scenario on the effect of The FAIRtax on foreign investment isn’t some vague theory but simple logic.
If you reward something you receive more of it.

The difference is The FAIRtax doesn’t reward “The Ruling Class” and their minions like the present Income-Payroll-Tax-System.

When The FAIRtax becomes law and the corrupt Income-Payroll-Tax-System is gone, future generations will ask, “How could a small group of greedy people convince their parents and grandparents to let them make huge profits at everyone else’s expense?  How could this greedy group do this to the people who trusted them?”

Maybe the answer is as simple as this.  When a man who had swindled millions of dollars from retired people was brought before the judge for sentencing, the judge asked, “How could you swindle all of those nice old people who trusted you”?

The swindler answered, “Your honor, people who trust you are the only people you can swindle”.

It's time to examine not just their words, but the actual deeds “The Ruling Class” and their minions are doing.  As despots have learned throughout history, when people look at actions rather than words, the enormity of the fraud being perpetrated against them becomes evident.  And when that happens, the ones committing fraud can never stand against the people’s anger.

It’s time to take back control of our income and our lives and demand a SANE-tax-system to fund our Federal government.
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 #202 - "Stuck On Stupid!"

The tax code!  Not just for raising revenue anymore!

When it comes to raising revenue for the federal government, many legislators, journalists and bureaucrats are "Stuck On Stupid!"  Incorrectly using the tax code to address every perceived problem in America.

From municipal solid waste, climate change, fighting crime, these people propose all manner of changes always creating more problems via unintended consequences. The FAIRtax Guys lay it all out for you.

Is it any wonder our income tax code is over 75,000 pages and 10 Million words long?  The FAIRtax Guys tackle this problem head on with another fact filled, informative episode.

And don’t miss the exciting announcement at the beginning of the show.  FAIRtax Power Radio will soon hit the airwaves.  Listen and Get the details. 

Join us for another information packed episode of FAIRtax Power Radio and you’ll be on your way to becoming a FAIRtax expert.

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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