THE 1918 FLU, THE COVID CRISIS AND THE FAIRTAX
Most of us are not old enough to remember the personal and economic devastation caused by the 1918 flu epidemic. This flu was caused by the H1N1 virus and it is estimated to have infected over 500 million people—one-third of the world’s population at the time. In contrast to Covid 19, the mortality was high in children under five and people between 20-40 years old.
There were no vaccines and no antibiotics to treat bacterial infections that were associated with the 1918 flu infections. The most commonly used methods of slowing down the spread of the flu were disinfectants, isolation, quarantines, limitations of public gatherings. They also wore masks.
Government safety nets are much different today. Today governments around the world are seeing greatly decreased revenues and greatly increased demands for services as they try to keep their populations and economies from collapsing.
For most governments, the solution to any financial problem is to raise taxes, of if they can, mortgage the future of the country by borrowing money. In the U.S., this involves a combination of raising income taxes on corporations and individuals, creating new taxes—like wealth taxes, and borrowing more money.
The U.S. government uses sophisticated computer systems to predict how much revenue these higher taxes will raise, and politicians then make decisions based on these predictions.
None of these computers are capable of predicting how people will react to the new tax policies. People distrust governments and are often motivated by the need to protect themselves and their families from having more of their money confiscated.
Many politicians believe that people who don’t just hand over their money are being selfish. However, most politicians don’t want to offend anyone. As long as people will tolerate their increasing the national debt and using borrowed funds to distribute benefits to the people, politicians see this as the safest way to go.
Politicians also know that most of their voters have to balance budgets and sense there is something wrong with more debt. Therefore, they have to act like they are raising more money through higher taxes. The safest way for politicians to raise taxes is to promise that the increases are “only on the wealthy”. Since “everyone knows that the wealthy have plenty of money”, the politicians try to sell the idea that making “the wealthy” pay their fair share will solve all of our problems. Not only will the middle class not be affected by the higher taxes, everyone will benefit from the government having more money.
Here is some interesting data from Bloomberg Wealth:
The 50 richest people in the country are worth almost $2 trillion, according to the Bloomberg Billionaires Index, up $339 billion from the beginning of 2020.
They point out that If the U.S. government assessed a 5% wealth tax on this group of people, the government would receive an additional $100 billion of revenues. For example, Jeff Bezos has a reported net worth of $180 billion. Taking $9 billion of his wealth will still leave him with plenty of money for expensive meals and trips on his private jet.
$9 billion is a number that is incomprehensible to the rest of us but it does make sense that if such a wealth tax were enacted, Mr. Bezos could still live quite comfortably on his remaining $171 billion. Of course, Mr. Bezos is not likely to just fork over $9 billion to the government without a fight.
According to the Balance:
The fiscal year (FY) 2020 federal budget outlines U.S. government revenue and spending from Oct. 1, 2019, through Sept. 30, 2020.
The deficit was $2 trillion more than the $1.08 trillion budgeted for. The president's budget planned to spend $4.79 trillion while taking in revenue of $3.71 trillion.
The details below compare actual revenue, spending, and the deficit to the budget. It reveals how the COVID-19 pandemic affected the federal government's plans.
If the government taxed the 50 wealthiest Americans at 100%--taking every dime they have—it would raise $2 trillion. That would reduce the deficit, but not eliminate it. So, what would happen next year? Would the government then confiscate all the wealth of the next 50 wealthiest Americans?
In an article entitled, It Is Arithmetically Impossible to Fund the Progressive Agenda by Taxing the Rich, David Burton stated:
Data from the Internal Revenue Service Statistics of Income show that imposing a 100 percent flat tax with no zero bracket amount on those with incomes of $1 million or more would increase federal revenues by about $986 billion annually. Thus, a policy of confiscating all the earnings of those with incomes over $1 million would not even eliminate the federal deficit, currently about $1.1 trillion annually—let alone pay for proposed utopian progressive programs. This figure reflects taxation of all income, including the first $1 million, at 100 percent and does not consider federal payroll taxes or state and local income, property, and sales taxes (approximately $106 billion) already paid by this group.
Confiscating all remaining after-tax income of those with incomes of $500,000 or more would increase federal revenues by about $1.4 trillion annually. This assumes confiscation of their first $500,000 in earnings as well. This is enough to eliminate the federal deficit but not much more. If, however, the federal government were to confiscate all remaining after-tax incomes of those earning $200,000 or more, that would increase federal revenues by $2.7 trillion annually. (See Table 2.)
As David points out, only the most naive bureaucrats and politicians would assume that this tactic of confiscating all income above $200,000 would provide government with revenues for more than one year.
In the real world, such a policy would quickly wind up generating absolutely nothing for the government. Who in their right mind is going to work for an income higher than $200,000 if the government is going to take everything above that threshold?
It’s like the farmer who saves enough seeds from his current crops to be able to plant next year’s crop, but then suddenly decides to sell or consume all of his seed. He may do well in the current year but then he has nothing in the following years.
In addition, what do you think this kind of confiscatory taxation is going to do to the tax evasion rate which is already at $1 trillion a year? People with those kinds of incomes are not going to just obediently hand over their wealth. They’re going to do everything they can—legally or otherwise—to protect what they have. Under such a tax policy, the government will steadily lose revenue until the paper money it is printing will no longer be supported by a productive economy. At that point, it becomes worthless.
The FAIRtax Solution
No one disagrees that:
- Overcoming the economic effects caused by government reactions to the pandemic is a huge problem.
- Many people and businesses can survive only if they receive assistance.
- The federal government will have to generate more revenue either through more borrowing or by a combination of borrowing and higher taxes.
- All of us will have to be willing to contribute to the solution—like we would in any crisis that threatens our very survival as a nation.
- No one believes that Congress won’t carve out special exemptions for the constituencies that pay them with money or votes. The people instinctively know that Congress will be all too happy to leave the burden of the “sacrifice” on the rest of us.
The present income/payroll tax system is very divisive. It creates conflicts between groups of people that politicians love. It produces a zero-sum game. It is not conducive to creating more wealth, but instead, existing wealth is taken from one group and given to another group.
Regarding the FAIRtax, no one can dispute that:
- The economy will grow much faster with the FAIRtax than with the present income/payroll tax system.
- More and higher paying jobs will be created.
- Social Security and Medicare will be protected.
- The FAIRtax will level the playing field between American manufacturers and foreign competitors in both the domestic and international markets.
- The Prebate/tax credit will ensure that lower income Americans are not harmed.
- The cost of doing business goes way down under the FAIRtax resulting in lower prices for consumers.
If an extra subsidy or stimulus is needed in a crisis, it can be easily provided by increasing the amount of the monthly prebate.
People will see on every retail receipt just how much the Federal government is costing them providing an incentive for Congress to keep those costs under control.
People can be confident that everyone is paying their fair share and that Congress is not playing favorites by giving one group a break while penalizing another group.
When people face a common enemy and know that everyone is making the necessary sacrifices to overcome that enemy—there is a united effort and the probability of success goes up.
When people face a common enemy but believe that certain privileged groups are being spared the need to sacrifice, there is no united effort and the probability of success goes down.
With the FAIRtax, even if the rate has to be increased, we know that all of us are paying and the sacrifice is being spread to everyone. Those enjoying special privileges and exemptions under the current income tax will be paying the FAIRtax when they make purchases and there is little that the politicians can promise them except—more prosperity.
Isn’t it time that politicians are judged not by how well they shift the burden of funding the government from one group to another but by how well all of the people are doing?
As Martin Luther King, Jr. said, “The time is always right to do what is right.”
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?”