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The Chairman's Report December 11, 2020

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CHOICE

The second definition in the Merriam-Webster dictionary for “choice” is: Power of choosing.  Many of us know people who were subjects of repressive regimes, like the old Soviet Union, where the power of choice was very limited.

These people often had little to no choice in deciding where they lived, where they worked, or where they went to school.  Shopping was always an adventure because stores would often sell out.  Even when things were in stock, there was very little variety and you simply had to take what was there.  If you wanted an appliance you had to sign up and wait.  If you wanted a car, the same thing—sign up and wait.

Ask an immigrant from one of these countries what’s the biggest difference between their old country and the United States.  More often than not, they won’t mention things like freedom of speech or freedom of religion.  Instead, the biggest thing to them is being able to choose from a wide variety of vegetables at the grocery store, or having a choice from among a number of different models of refrigerators.

Of course, there are times when choices should be limited.  Playing in the middle of a busy street is not a choice you want your eight-year-old to have.  And most would agree that drivers should not have the choice of going 50 MPH in an active school zone.

In Federalist No. 12, Alexander Hamilton said,

A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. 

For most of its life, the United States obtained most of the revenue it needed from a combination of tariffs, duties and excise taxes (a tax on certain goods like the gasoline excise tax).  Then in 1913, the 16th Amendment provided a new revenue source—the income tax.

Before the income tax, citizens could choose how much tax they paid by altering their purchasing decisions.  Purchase a lot, pay a lot of tax.  Purchase less, pay less tax.  If the taxes increased the price of goods too much, citizens would either buy less, or in some cases, do without a particular item altogether.

This served as a restraint on any Congress that wanted to increase taxes too much.  They knew that if they raised taxes to the point where it would significantly depress sales, they’d actually collect LESS revenue because people would be making fewer and smaller purchases.  Also, large tax increases would encourage tax evasion, again leading to less revenue.

From the politicians’ perspective, one of the great benefits of the income tax is that it drastically curtailed the people’s power of choice in dealing with their own tax burdens.

THE INCOME/PAYROLL TAX AND THE POWER OF CHOICE

There is very little power of choice under the income/payroll tax system.  Theoretically, people COULD choose to pay less tax by earning less money, but that’s a terrible choice for someone trying to earn a living and provide for their family.

The income tax, and especially tax withholding, has also made a drastic change in the way people view their own money.  Most people view their income based on their net pay—the part that’s left over after the government helps itself to whatever it wants.  They don’t even realize that their actual income is their full gross amount.

The income tax operates on the principle that your money actually belongs to the government.  They take what they want, and then you can reclaim part of it if you follow their “rules.”  Of course, the rules are constantly changing as power shifts back and forth between the political parties and lobbyists continue to buy tax favors for their clients making other taxpayers make up the difference.

Because the rules keep changing, it’s impossible to make sound, long term decisions.  A decision that makes good sense today can turn out to be a terrible decision next year.  For example, people counting on using their mortgage interest as a way to reduce their taxable income could find that deduction severely limited or even abolished altogether not long after they made their home purchase.

The sad fact is that every year, the government takes your money and then you just have to hope that you can claw some of it back.

THE FAIRTAX AND THE POWER OF CHOICE

The FAIRtax is essentially an excise tax on new goods and retail services.  Because the sale of new goods and the provision of retail services are much more easily tracked today, the FAIRtax can be adjusted to raise any amount of money the government needs.

One of the beauties of the FAIRtax is that the old economic law that applied before the income tax is still in effect today.  Raise the tax too much, and people will cut back on their purchases resulting in LESS revenue to the government, not more.

In other words, citizens will again have the power of choice.  With the FAIRtax, they can elect to purchase used goods and pay no FAIRtax on those purchases.  They can pay less FAIRtax by repairing an existing car rather than purchasing a new one.  They can control how much FAIRtax they pay by controlling how much they spend.

In a good economy, people spend more money and FAIRtax revenues will increase.

Historically, a sales tax has always been a more stable source of income for governments than an income tax.  Even in a recession where people lose their jobs and incomes are significantly reduced, there is still a basic level at which people have to spend in order to sustain themselves.  Yes, people spend less in a bad economy, but spending is still much more predictable and much less volatile than income.

CONCLUSION

Governments throughout history have all been more concerned with perpetuating their own existence than with “serving” the public.  Unlike private companies, the federal government doesn’t have to make a profit to stay in business.  Consequently, inefficiencies often abound in government operations.  Governments are generally not subject to the competitive pressures that exist in the private sector.  This often results in citizens receiving less or inferior service from the government than they would receive from a private vendor.

Citizens resent this.  To allow their inefficient operations to continue, governments often decide not to reform but to limit their citizens’ power of choice.  If you want to own a home in a city that is badly mis-managed, you still have to pay the property tax or lose your home—even though you know you are helping fund an inefficient and often corrupt government operation.

If you want to have a job, you must allow the federal and state governments to withhold taxes from your paycheck even if you disagree with certain government policies or think that your taxes are too high.

Governments have learned to follow the words of Jean Colbert, the finance minister for French king Louis XIV:

The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.

They know that if the citizens realize just how much they are being plucked, they may do more than just hiss.  This is one of the reasons that illegal evasion of the income/payroll tax will likely exceed $900 billion for 2020.  People can’t stop the government from taking money out of their paychecks, but they can find ways to evade taxes by underreporting income, overreporting deductions, or both.

Instead of trying to reduce evasion by reforming their spending or improving their service, the federal government is trying to force companies to hire people as employees rather than as contractors.  Why?  Because employees are subject to tax withholding while contractors are not.  The bureaucrats want to get their hands on as many people’s paychecks as possible.

When the FAIRtax is adopted at the federal level, the citizens can decide if the benefits they receive are worth the taxes they are paying.  If the FAIRtax is adopted by the states, then the costs of government become even more transparent.

IT IS TIME FOR GOVERNMENTS TO TELL US THE TRUTH ABOUT HOW MUCH THEIR SERVICES ARE REALLY COSTING US AND BE ACCOUNTABLE!

If you have friends who don’t know about the FAIRtax, send them to FAIRtax.org. Have them watch the white boards under “How It Works” and, if they agree, ask them to please join us.

Then contact your Members of Congress and the President and demand that Congress pass -the FAIRtax—the only fair tax.

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.”

Is it hopeless?  When confronted with a seemingly impossible problem, remember the statement attributed to the author George Bernard Shaw who 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?”

 
Thank you for staying FAIRtax strong!
 
Yours In Liberty!   Yours In Freedom!

Steve Hayes
Chairman, Americans For Fair Taxation


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