The FairTax Book

I've long been an advocate for some sort of change to our existing tax code. Even if my tax rate (which I do think is far too high) stayed the same, something simpler is necessary. It's so hard to look back and identify what I actually pay in taxes or with all the different taxes that I do pay, when I actually pay taxes. I pay income tax, dividend tax, property tax, sales tax when I buy things at sometimes varying rates depending on what type of item it is. I pay withholding taxes, ad valorem taxes on my automobiles, taxes on the plane tickets I purchase, the hotels that I stay in, and recovery fee taxes on my phone bill. What a mess! FairTax doesn't change all of this unfortunately but it does take a big step in the right direction.

Here's a very high level look at FairTax:

1. No more income tax on individuals or businesses
2. A new consumption tax, similar to a sales tax
3. The tax is charged only on new goods and services - no tax on used goods or items purchased for resale
4. All people are taxed at the same rate - no more progressive tax system
5. Every family receives monthly check called a "prebate" which negates the taxes that a family earning income at the poverty line would pay on goods and services

Here's a kind of step by step look at what happens now and how that changes after FairTax is implemented:

1. I feel that I should be able to make $10/hour for the widgets that I produce.
2. Unfortunately I have to pay taxes on the $10 so instead of taking a job where I make $10, I need to look for a job where I make $13 so I can afford to pay my taxes and still have my $10 to live on. I actually take home $10 and the government takes $3.
3. In addition to the taxes that I have to pay on my income, my employer also has to pay taxes on my behalf. That means it may actually be costing my employer closer to $14 to employ me.
4. The employer has to set to price of widgets at $1 rather than $0.78 to account for the difference between the $10 that I feel like I should be making and the $14 that it actually costs the employer to employ me.
5. That difference between $0.78 and $1 is called an embedded cost. Economists estimate that there's an average of a 22% embedded costs in all of the goods and services that we buy today (hence the $1 and $0.78 in the example - a 22% embedded cost).
6. When FairTax is implemented, embedded costs disappear across the board. Instead of me charging my employer $13 for my services instead of the $10 in order to pay my taxes, I can go back to charging my employer just $10 or somewhere between the two.
7. Now instead of my employer charging $1 for the widgets, he could charge the $0.78 that it costs him to make them.
8. I say could charge because here's where the consumption tax comes into play. FairTax proposes a 23% inclusive tax on all new goods and services sold. That tax will push the cost of the widget from $0.78 to $1.01 leaving the cost of the item virtually unchanged from the $1 you're currently paying.

As you can see from this rudimentary example, after FairTax, I'm going to be taking home roughly the same amount of money. The goods and services that I consume will cost roughly the same. The big benefit is that I no longer have to file any tax returns! I don't have to hire an accountant to file my taxes for me. I don't have to track down every little deduction and save receipts. I don't have to worry about being audited.

In addition to the benefits that I get to experience, the country will benefit. Currently illegal activities and illegal workers are completely untaxed. They pay nothing. FairTax doesn't encourage or even allow illegal activities but it does make sure they're taxed. Currently if the income I earn is earned illegally, I'm certainly not paying taxes on it (think Al Capone here). Under FairTax, the income isn't taxed but any goods and services that I purchase with that income is taxed! Think about it. If I make $50,000 illegally then I'm currently paying no taxes. Under FairTax, I'm going to pay those taxes when I decide to go out to dinner or buy groceries or clothes or anything else I spend my money on. The government collects an additional $11,500 under FairTax. Experts estimate that the underground economy in the US is billions upon billions of dollars per year. That's additional revenue under FairTax. In the same way, visitors to the US who earn no income here also pay taxes when they stay in our hotels, visit our theme parks, and shop at our malls. Because our tax code is simplified it will also encourage the investment of foreign capital. Economists almost unanimously predict unprecedented growth under the FairTax plan.

As you can hopefully see by now, there are a lot of good things about the FairTax system. So what's the bad? Well, honestly, there's not much. It's going to put a lot of current IRS employees, accountants, and lobbyists out of business. It's also going to take away a lot of power from politicians. Currently they can make a change to the existing tax code to favor a particular group of people and hope that group repays them with a vote. FairTax removes this political temptation and keeps the tax code equal and fair for everyone. You'll hear a lot of these groups complaining because of these things but check out the book. It's time for FairTax.

Neal, Neal, Neal... Boortz Gets One Wrong

Usually I agree with Mr. Boortz. Today I just couldn't, though. I think he's missing the boat on the use of "under God" in the pledge. I'm not in favor of church sponsored religion; I just believe that the founding fathers viewed a belief in God, not as an endorsement of a particular religion, but as a prerequisite for the nation to exist and function as a nation. I've written on this previously but reading Neal's post caused me to do some more digging and reading and led to the following letter being sent to Neal Boortz.

Letter begins:

I'm never listening to your show again, you @#$*&. Ok... not really. I'm a fan of yours! I just happen to disagree with you about “under God” being used in the pledge.

The title of the entry in the Nuze contained the phrase “It’s all about legislative intent” and I agree. It’s crucial that we understand the thoughts of the Framers and the environment at the time. Prior to the writing of the Constitution, the Anglican Church was the official church of the State of Virginia. Virginians were compelled by law to observe the teachings of the church including regular attendance and tithes. There was even in some cases an outward persecution of other churches including Quakers, Lutherans, Baptists and Methodists. The state church was abolished shortly after the Revolutionary War, just prior to the writing of the Constitution, by an act called the Virginia Statute for Religious Freedom.

Now that we have something of background of the environment at the time, let’s look at the actual wording of the Constitution. The Nuze states that, “Our Constitution makes it clear that the government should not be engage in a coercive exercise where people ... must acknowledge the existence of God.” That's not what the Constitution prohibits, though. The First Amendment prohibits laws “respecting an establishment of religion.” The use of the word "an" here is very important. American Heritage Dictionary states, “An is in fact a weakened form of one; both an and one come from Old English n ‘one.’” In other words, the First Amendment wasn’t meant to prohibit laws respecting “the” establishment of religion in general but laws respecting “one” establishment of religion over another: for example, laws that would give preference to the Anglican church over the Quakers.

The only other angle I really want to cover is the idea that perhaps the phrase “under God” gives preference to the establishment of one religion in the sense that it gives preference to monotheism over atheism. If atheism is considered a religion then yes, “under God” would be, ”respecting an establishment of religion.” Is atheism a religion, though? Going back to our friends at American Heritage Dictionary, religion is first defined as “belief in and reverence for a supernatural power or powers regarded as creator and governor of the universe.” Princeton’s WordNet agrees in stating, “a strong belief in a supernatural power or powers that control human destiny.” This would seem to indicate that perhaps atheism is not a religion. Legal decisions have been mixed, though. Some indicate that “for legal purposes,” atheism is to be considered a religion. Others have ruled that it is not. Ellen Johnson, President of American Atheists, does not believe that atheism is a religion. In speaking of a court decision where atheism was ruled to be a religion, Johnson said “The 7th Circuit incorrectly said that Atheism should be considered a religion because when a person holds beliefs dealing with issues of ‘ultimate concern’ that occupy ‘a place parallel to that filled by God in traditionally religious persons,’ those beliefs represent his/her religion. This is not the definition of Atheism.” In short, it’s a mixed bag as to whether or not atheism is considered a religion today.

Did the Framers consider atheism to be a religion, though? That’s the real question. Going back to the concept of legislative intent; the church of Virginia was abolished by the Virginia Statute for Religious Freedom, as I mentioned earlier. It’s much more verbose that First Amendment but in my mind attempts to capture the same intent of the First Amendment. “All men shall be free to profess … their opinion in matters of religion” is very similar to “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” That’s not all the VSRF says, though. The VSRF also contains the following:

“Whereas Almighty God hath created the mind free; that all attempts to influence it by temporal punishments or burthens, or by civil incapacitations, tend only to beget habits of hypocrisy and meanness, and are a departure from the plan of the Holy author of our religion, who being Lord both of body and mind, yet chose not to propagate it by coercions on either, as it was in his Almighty power to do; that the impious presumption of legislators and rulers, civil as well as ecclesiastical, who being themselves but fallible and uninspired men, have assumed dominion over the faith of others, setting up their own opinions and modes of thinking as the only true and infallible, and as such endeavouring to impose them on others, hath established and maintained false religions over the greatest part of the world, and through all time.”

Thomas Jefferson and James Madison, those who crafted and assured the passage of the VSRF, would have been showing a preference to a particular religion (monotheism) in the very document they intended to give religious freedom if they considered atheism a religion. They clearly did not believe that atheism was a religion. John Adams provides additional insight in his assessment of the Constitution. It “was made only for a moral and a religious peoples. It is wholly inadequate to the government of any other,” he wrote. He obviously believed there were some people who were “religious” and some who were “not religious.” If he considered atheism to be a religion then his statement would not have been limiting in the least. Adams also could not have considered atheism to be a religion.

The alternative is that atheism is not a religion and the fact of the matter is, there must be things that the entire nation is willing to presuppose in order for the nation to exist and function as a nation. The Ninth Circuit Court of Appeals in San Francisco has previously referred to these as “the values for which the flag stands.” Just as the Court has acknowledged that liberty and justice are values for which the flag stands, our founding fathers would argue that a belief in God is just as central an idea. Jefferson put it this way, “Can the liberties of a nation be thought secure when we have removed their only firm basis, a conviction in the minds of the people that these liberties are of the gift of God?”