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Chairman's Report - November 3, 2017

WHO PAYS THE CORPORATE TAX?

Investopedia defines a corporation, "A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. It is often referred to as a "legal person."

As the definition explains, a corporation is a business owned by others.  A business must produce a product that others will pay more for than all of the costs to produce the product.  The costs for the business include wages for employees and payroll taxes, income taxes and other costs of production.  In order to justify being in business, a business must generate profits that can be distributed to the business owners to justify their investing capital in the business.  Obviously, if an investor can make more money in other ways, they will not invest in a business.

Once all of the costs are calculated and an amount for profit is added together, the business then must set a price for which it will sell its products.  Hopefully, the selling price will be enough to cover all of the costs and provide a profit to the business.

If the business has lots of competition, the selling price may have to be reduced.  This means that the business will have to find a way to reduce costs and/or profits to make the selling price competitive.  After you have reduced the costs of production as much as you can, there are only three more ways to cover the costs.  One is to increase the price of the product--if you can. The second is to reduce the amounts of profit.  The third is to lower wages or keep them down.

All of the above sounds very simple and logical and it is--to most of us.  However, there are many politicians and "think tanks" that make a living claiming that the corporate tax is needed and does not require any sacrifices on behalf of the corporation's employees, shareholders or customers.  Somehow or another the corporation needs to pay more and no one will suffer.

Tax Foundation, Labor and the Corporate Tax

Steve Entin is a Senior Fellow at the Tax Foundation.  He has written an excellent paper exposing a truth that many in the Swamp don't want to admit.  

Here are some of his key findings:

 

  • Early analysis of the distribution of the corporate income tax relied on theoretical models and thought experiments. These hypothetical models assumed certain quantities of capital, market conditions, and investor behavior. The most important assumption in these models is how open the U.S. economy is to trade and the movement of capital. Open economy models concluded that nearly all the burden of the corporate tax falls on labor.
  • Over the last few decades, economists have used empirical studies to estimate the degree to which the corporate tax falls on labor and capital, in part by noting an inverse correlation between corporate taxes and wages and employment. These studies appear to show that labor bears between 50 percent and 100 percent of the burden of the corporate income tax, with 70 percent or higher the most likely outcome.
  • More importantly, we take issue with the use of super-normal returns as a guide to incidence. Pure economic (monopoly) rent is unaffected by taxes, but is uncommon. The super-normal methodology also includes returns to business activity outside the monopoly area, such as quasi-rents and other transitory earnings due to imperfect competition or risk premiums. These earnings in non-monopoly sectors of the economy are clearly sensitive to tax, and taxes on returns in these sectors fall heavily on labor, and not, as asserted, only on capital.

 

These conclusions clearly indicate that most of the costs of the corporate tax are directly related to lower wages to its employees.  

 

If a 20% Corporate Tax is Good for Wages, Think of What a 0% Tax Would Mean

 

Assuming that Steve Entin is correct and the majority of the burden of the corporate tax is on employees and the remainder of the burden either reduces profits or is passed on in higher prices to consumers, who wouldn't support elimination of the corporate tax?

The answer is simple.  The D.C. Elites, the lobbyists and the politicians who profit from the present income/payroll tax system.  These people are not interested in what is best for anyone else.  They have a lucrative business and the elimination of the corporate tax would really reduce their ability to extort money from wealthy corporations.  Why do they want to keep corporations on the hook?  Like Willie Sutton, the bank robber who stole an estimated $2 million, explained about why he robbed banks, "That's where the money is."

Corporations can afford to pay this money.  After all, it is not their money.  They either punish their employees with lower wages, reduce distributions to their shareholders or force all of us to pay these fees in higher prices.

Conclusion

In addition to the impact of the corporate income tax on employee wages, most economists agree that most of the effect of the 15.3% payroll taxes is also paid for in reduced wages.  With the FAIRtax, there would be no corporate income tax and no payroll tax.  This is a no-brainer.  Yet, D.C. continues to just ignore common sense.

You might ask, "Why don't the corporations and labor unions rise up and attack the corporate tax?"  Wouldn't this be what is best for all of us and for their employees and shareholders?

The answer is complicated but most corporations and labor unions are concerned that they will lose other benefits provided to them by the D.C. Elites and the politicians.  Also, big corporations have the resources to deal with the complexities of the corporate tax and other regulations and this makes it more difficult for competitors with less resources to compete.

It is time for all of us to exercise our rights as citizens and in the upcoming primaries show the Congressional candidates that we are not going to tolerate their unwillingness to do the right thing for us.  If they want to only benefit themselves, then they should go get real jobs and not just feed off of us.

The D.C. Elite and lobbyists will not change.  Our only chance is to elect Members of Congress who will do the right thing for all of us.  We should quote Mark Twain when we communicate with the politicians, "Do the right thing. It will gratify some people and astonish the rest."

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.”

WHAT CAN EACH OF US DO

Call up the local or D.C. offices of your House Member and two Senators and you can use the following script:

  • I am sure that Representative ____ or Senator ____ is in favor of everyone obeying the income tax laws.
  • After they assure you that 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 ten years.
  • Since most will say they don’t believe their boss has seen the study, either drop off a copy or get an email address and send a copy to them for their boss.
  • 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 that simplifying the income tax will handle the problem.
  • Explain that when people evade income taxes, they are also evading the 15.3% payroll/Medicare tax and state income tax.  So it is unlikely that they are going to pay 30% or 40% when they were paying 0% because they have already decided it is okay to cheat.
  • Say that 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 that 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 that the way to handle evasion without unleashing the IRS audits is the FAIRtax.  

 

If you can see your Member or attend a town hall and ask these questions, you can be even more effective.

​




CONGRESSMAN, WHAT IS IT YOU LOVE ABOUT THE IRS?

FAIRTAX POWER RADIO EPISODE #81

 

The FAIRtax Guys discuss how to take full advantage of a Town Hall Meeting with your Congressman or Woman to promote the FAIRtax and force your legislator to take a position on the FAIRtax. One to one contact, with many of your fellow citizens to help you out, is a great way to steer the discussion on tax reform toward the FAIRtax.  As The FAIRtax Guys discuss, you can make sure that the FAIRtax is discussed every time your legislator meets the public. 

Several weeks ago, in his Chairman’s Report, Steve Hayes discussed his interview with Stuart Varney on the Fox Business TV channel.  In last week’s episode of FAIRtax Power Radio, The FAIRtax Guys critiqued Stuart Varney's performance during that interview. Based on some of the comments Varney made, it’s clear that he needs to do his homework on the FAIRtax.  However, Steve did take Varney to school on the subjects of tax evasion and Congressional tinkering with the tax code.  Listen every week and see how you can help educate the media on REAL tax reform, the FAIRtax.

ARE YOU SPREADING THE WORD ABOUT FAIRTAX POWER RADIO?  Telling your friends and relatives about our free weekly podcasts is a great way to help us garner more support.  It is the American people who must demand REAL tax reform in Congress.  We must inform America about the FAIRtax!  Please help us.

You can listen to FTPR on any platform - Mac or PC, iPhone or Android. And it’s 100% free. 

Listen on Spreaker.com (http://bit.ly/27oJYlV), iTunes (http://apple.co/1Te8VdF) or iHeart Radio (http://bit.ly/2eqEG7y) on your computer or smartphone.  The easiest way to listen to FTPR on your smartphone is by downloading the free FTPR app.  Just search for “FAIRtax Power Radio” in your app store, download the app and start listening.  If you have trouble finding our free app, download the free Spreaker app. 

As stated earlier, we post a new episode every Friday morning.  Please listen and tell everyone you know about the FAIRtax Power Radio.  

The FAIRtax: Once You Understand It, You’ll Demand It!

 

HELP YOUR STUDENT LEARN ABOUT THE FAIRTAX WITH AMERICA’S BIG SOLUTION

America’s Big Solution is a basic introduction to the FAIRtax and is meant for people of any age.  Do you know someone who would like an introduction to the FAIRtax and would prefer to read about it rather than search online for Tweets, Posts and Shares?  If so, America’s Big Solution is your choice.

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 of the Florida FAIRtax Educational Association.  

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LINKS TO MORE INFORMATION

 

These links will help you promote and support the FAIRtax, make yourself familiar with the links below. We always do our best to keep our AFFT community up to date, and you can stay ahead of the curve using these convenient sites.



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