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Chairman's Report - May 25, 2018

THE FAIRTAX DOES NOT REDUCE PURCHASES OF GOODS AND SERVICES
 

When the FAIRtax is explained to many audiences, it is easy to see people thinking of the impact on their family if items were increased in price by 23%.  Since most in the audience are on a budget, the prospect of suddenly paying that much more is very concerning.


Of course, they are thinking in the context of the income/payroll tax system.  Here are some basic facts:

  • All taxes, of any kind, levied by the government reduce the taxed party’s ability to consume.  For example, if you have $100, pay $10 in taxes, only $90 is left.
  • Almost all government taxes are levied prior to consumption, like the income/payroll tax, or at the time of consumption like the FAIRtax.
  • The income/payroll tax takes your money before you receive it regardless if you spend it or not.
  • The FAIRtax allows you to receive your entire paycheck, without deduction for any federal tax, and only imposes a tax when you consume.


COST OF CONSUMPTION UNDER THE INCOME TAX/PAYROLL TAX SYSTEM


It is important to recognize that consumption is taxed now.  It is just taxed prior to consumption.


The following tables illustrate how much a person has to be paid in order to net $1000.00 after taxes.  The first table is for a person who is employed, receives a W2, and has their income/payroll taxes withheld each pay period.
 

Gross Amount Earned

Federal Income Tax Rate

Social Security/Medicare Tax Paid (7.65%)

Income Tax Paid

Net After Tax Amount

$1,214.32

10%

$92.89

$121.40

$1,000

$1,292.82

15%

$98.90

$193.92

$1,000

$1,382.17

20%

$105.73

$276.43

$1,000


The table below applies to the growing number of self-employed persons, people who receive 1099’s or are the owners of their own business—a rapidly growing segment of the work force.
 

Gross Amount Earned

Federal Income Tax Rate

Social Security/Medicare Tax Paid (15.3%)

Income Tax Paid

Net After Tax Amount

$1,345.90

10%

$205.92

$134.59

$1,000

$1,428.57

15%

$218.57

$214.28

$1,000

$1,538.50

20%

$235.38

$307.70

$1,000



TAX AND SPENDING COMPARISONS FOR THE FAMILY EARNING THE MEDIAN INCOME


According to the U.S. Census Bureau, the median family income in the U.S. was $57,617 in 2016.  For our purposes, we will round it up to $58,000 and assume that the family has two children at home.  $58,000 is $4,833 per month.


Income/Payroll Tax


The 2018 federal income tax standard deduction for a married couple is $24,000.  This means that, for federal income tax purposes, the family will pay no federal income taxes on the first $24,000 of income, leaving $34,000 of taxable income. Before other deductions, the family will owe $1,905 plus 12% of the amount over $19,050 which is 12% of $14,950 or $1,794.  $1,704 plus $1,905 equals $3,699.


Since the family has two children, they would receive $2,000 in tax credits for each child or $4,000 in total.  This means that the family will owe no income tax. (The additional $301 is not refundable.)


However, Social Security and Medicare taxes start at the first dollar the family earned and are not reduced by any deductions.  The family will owe $4,437 in Social Security and Medicare taxes if the married couple were W2 employees and $8,874 if the couple were self-employed or owned their own business and paid the full 15.3%.  (The owner of a business often receives W2 wages and pays 7.65% as an employee and the company pays the other 7.65% but the owner is still paying the entire 15.3%.)


This means that the family earners receiving W2 wages will have $58,000 minus $4,437 which equals $53,563 per year or $4,464 per month to spend.  If the family earners are self-employed or owners of their own business, they will have $58,000 minus $8,874 which equals $49,126 or $4,093 per month to spend.  


FAIRtax


The family earners make $58,000 or $4,833 per month.  If the earners are W2 employees, they will have no money withheld because there is no federal income tax or Social Security/Medicare tax.  The earners receive their whole $4,833 paycheck each month. In addition, at the beginning of each month, the family will receive a prebate/tax credit of $623.  This amount equals the amount of FAIRtax that is owed on the first $2,707 per month of spending on new retail goods and on retail services—like haircuts and car repairs.  This means that the family can spend $2,707 per month and pay no federal tax. $4,833 minus $2,707 equals $2,126 and this is the amount the family has left to spend.


Because the FAIRtax is only paid on the purchases of new goods or services, the family may further reduce the amount of taxes paid by purchasing used goods.  For example, if the family purchases a new home or new automobiles, they will owe FAIRtax on these purchases. This means that they could only spend $1,637 for the new home mortgage and the purchase of the two automobiles. ($1,637 is 77% of $2,126 and the FAIRtax of 23% equals $489.)


If the family purchases a used home and two used automobiles, they would owe no FAIRtax and would be able to spend the entire $2,126 per month.  This means that they could spend $489 per month more for the home mortgage payments or for the two automobiles or they could save the money.


Costs Will Go Down


The other factor is that, after the passage of the FAIRtax, the cost of goods and services is expected to be reduced by a minimum of 10% to 15% and maybe much more.  If it is only a 10% reduction, then the family with $4,833 per month to spend would find their money purchasing an additional $483 per month of goods and services.


This table summarizes the spendable income available to the family of four under the present income/payroll system and under the FAIRtax.  
 

$58,000
Earnings

W2
Earner

1099 or
Self-Employed

FAIRtax

All
Spending
After
Prebate
are
for

New Goods

FAIRtax

All
Spending
After
Prebate
are
for

Used Goods

Taxes

$4,437

$8,874

$5,868

$0

Net Spendable Income

$53,563

$49,126

$52,132

$58,000

Additional Purchasing
Power if 10%
Price Reduction
After FAIRtax

$0

$0

$57,345

$63,800
 

Of course, if the family spent 50% of their money after the prebate amount on used goods then their tax would be reduced to $2,934 and the total spendable income, before the effect of the price reduction, would be $55,566.
 

CONCLUSION
 

While no tax is purely voluntary, a tax levied at the time of consumption, like the FAIRtax, can be reduced, or even eliminated, by the consumer.  As the above examples show, it is possible to spend $58,000 and owe no FAIRtax because of the prebate/tax credit and the purchase of used goods.


Under the income/payroll tax system, the tax is levied prior to consumption and the family earning $58,000 will have to pay a minimum of $4,437 in Social Security and Medicare even if they elect to purchase the same items purchased by the family in the FAIRtax example.


Until 1913, our country survived quite well without the income tax/payroll tax.  The FAIRtax places us back in control of our spending and the federal taxes we pay.  It saves Social Security and leads to more and faster economic growth.


This is a new time and calls for new ideas. In his Second Annual Message to Congress on December 1, 1862, Abraham Lincoln said, "The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew, and act anew. We must disenthrall ourselves, and then we shall save our country." 


The FAIRtax is better for everyone except the Swamp and their friends in Congress.  


It is time to PASS THE FAIRTAX!


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.
 

FAIRTAX POWER RADIO #109

MORE CONFUSION FROM THE NEW TAX PLAN


Congressional leaders told the American people that their new tax plan, HR 1, would simplify taxes for everyone. So why does it require NINE pages just to give a summary of all the changes? And why is HR 1 causing problems for some states? The FAIRtax Guys describe some of the problems inherent with maintaining an income tax and use this analysis to make the case for the FAIRtax. Get more ammunition from The FAIRtax Guys so you can discuss true tax reform with others.  Another chapter in REAL tax reform is waiting for you. 


LAST WEEK’S EPISODE   A simple question with a a very provocative answer is “Who Opposes the FAIRtax?”  We know that the FAIRtax will not only simplify the system of federal taxation but also help countless Americans in many ways.  So who would oppose the FAIRtax? Who would stand to loose something when most Americans stand to benefit so much?  In last week’s episode, the FAIRtax Guys zeroed in on those few people who stand in the way of true tax reform and what their motives are.  Could it be that they benefit from the current system?  It’s not a pretty picture but The FAIRtax Guys are just the ones to paint the details for you.


PLEASE HELP US SPREAD THE WORD ABOUT THE FAIRTAX!

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.  


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.


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


THE ELECTRONIC INTRODUCTION TO THE FAIRTAX - AMERICA’S BIG SOLUTION


America’s Big Solution is a basic introduction to the FAIRtax and is meant for people of any age.  And you can download it to your tablet or smartphone right now.


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 their best 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.  


You can buy an electronic version of ABS as follows:  AMERICA’S BIG SOLUTION is available for only $2.99 for the Amazon Kindle (http://amzn.to/1WIRHry), the Barnes & Noble Nook (http://bit.ly/1XeG8bH) and Apple iOS (http://apple.co/1tnqK0P).  


You can purchase a print copy at the same Amazon link above for $9.25.  Regardless of whether you choose the electronic format or the print format, you’ll find AMERICA’S BIG SOLUTION will give someone the boost they need to begin their study of the FAIRtax and the suggested resources to learn more. Buy AMERICA’S BIG SOLUTION now!


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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