What do Americans Want in a Tax System?

After spending seven years and $22 million in research, Americans For Fair Taxation (AFFT) found that these were the most important things people wanted in a tax system.

1. A tax system that they are able to understand, and is easy to deal with.

2. Fairness. They would like to know that everyone is going to be treated the same.

3. Clarity. They would like to know all of the taxes they are paying. If it could be shown as one number, in one place, that would be best.

4. Compassion. They would like to be sure that the poor and elderly are protected from paying federal taxes.

5. A tax system that doesn't change and won't have thousands of lobbyists donating money to legislators' campaign funds to make changes.

6. A tax system that doesn't harm our economy or keep our workers from getting ahead.

How does our current system meet these wishes?

Our current tax system violates all of the wishes of the people surveyed.

1. No one understands our current tax code. IRS agents have admitted that it is almost impossible to calculate a tax return correctly. Money Magazine has 50 tax professionals determine the taxes for a fictitious family of four every year. Each year they get 50 different answers. According to the IRS you may get money back even if you paid no income taxes, if you meet these qualifications:

   "Income and family size determine the amount of the EITC. To qualify for the credit, both the earned income and the adjusted gross income for 2002 must be less than $29,201 for a taxpayer with one qualifying child ($30,201 for married filing jointly), $33,178 for a taxpayer with more than one qualifying child ($34,178 for married filing jointly), and $11,060 for a taxpayer with no qualifying children ($12,060 for married filing jointly). The EITC Eligibility Checklist on the last page of IRS' Publication 596, Earned Income Credit, may be used to quickly determine eligibility for the credit."

   Keep in mind that if you make more than $27,700 you're in the top 50% of income tax payers, according to the IRS, and that your group pays 96% of the income taxes.

   According to a recent study 60% of congressmen have their taxes done by a professional, while 57% of Americans do not understand the tax code well enough to calculate their own taxes.

2. As far as fairness goes our current tax system fails that test also. Before the tax code was passed in 1913 the wealthy people made sure that foundations were in the tax code. In this manner they did not have to own the wealth, as long as they had control over the use of the money.

3. That is why today you will find people like Bill Gates' grandfather renouncing attempts to repeal the estate tax. If you read his opinion, you will find at the end, Bill and Melinda Gates Foundation. He is exempt from the estate tax because he has his funds in a foundation. It is duplicitous to argue against a tax that people believe you are liable for, when, in fact, you are not.

   Your neighbor is not treated the same way that you are in our tax code. If you've attended a financial planning seminar you know that they give you certain advice. They tell you to maximize the mortgage on your home(s). This is because you may write off mortgage interest.

   They will also tell you that if you're wealthy enough you may invest in low-income housing you may receive a 120% rebate from the government. Warren Buffet holds the largest amount of this type of investment. They will also tell you that if you invest in oil drilling you may write off 80% of your investment even while you retain full ownership of your shares. This is neither fair nor clear to the public.

   If you own a small business Americans For Fair Taxation's research shows that it costs you $742 in compliance costs for every $100 you owe in taxes. Larger businesses do not experience that punitive a ratio, but still experience high compliance costs.

4. Clarity is certainly lacking in our tax system. Most people are not aware that businesses have never, and will never pay taxes. They do raise the price of their products to cover the cost of any tax, but it is impossible for them to open a magic drawer and come up with money to pay taxes. The only source of income for this restaurant is the food they sell. You will see that taxes are part of their expenses. If they do not collect enough money to cover their expenses they will go out of business.

   Americans, for the most part, never do any accounting work. For that reason, when someone says, "Companies must pay their fair share," they are speaking out of ignorance. Because of the 40% corporate tax many companies are moving jobs and headquarters overseas where the taxes are lower, where their prices may be lower because of the lower taxes. A Finnish company, Stora Enso, purchased Consolidated Papers, Inc. Bethlehem Steel was purchased by the International Steel Group. British Petroleum merged with Amoco and calls them Beyond Petroleum so as not to offend any Americans.

   Many manufacturing jobs have moved to Mexico, Spain, The Philippines, Korea, China, and India. A recent survey by A. T. Kearney found that 500,000 service jobs would be moving out of the country shortly. Here is a quotation from the Center for Freedom and Prosperity, "Indeed, the interaction between corporate taxation and international competitiveness has become so striking in the "casual" data that a fierce international tax competition is raging.

   For example, it does not take a rocket scientist to recognize that between 1991 and 2000, Ireland, which has a corporate tax rate on profits from manufacturing activities of only 10 percent, posted an average growth rate of real GDP that was almost three times the average of other countries in the European Union (EU).

   While the U.S. has avoided engaging in this corporate tax competition over the past decade, the positive experience of those countries that have cut corporate taxes - and negative experience of those that have not - will likely have a significant impact on the U.S. tax policy debate in the coming years. Put differently, while the high tax on corporate income makes little sense from an optimal tax perspective, it makes even less sense from the perspective of international competitiveness."

   Most Americans also do not realize that they pay the employer's share of payroll taxes through lower wages. A majority of economists agree that this is what happens.

5. Is there compassion in our tax system? There is the Earned Income Tax Credit, which gives money to those who don't pay taxes.

   What these Americans don't understand is that they are taxed at an average federal rate of 22% whenever they buy food, medicine, clothes, or any other new item or service. There are a number of retired folks who would like to work but then they have to pay the payroll tax, which discourages most of them. Extra income may put them over a limit that they can make while receiving Social Security. Taxing Social Security payments is absurd in the first place. We may deduct the interest on our mortgage from the taxes that we've already paid. We may have other deductions from taxes that we've already paid. There are 32 pages of fine print that accompany form 1040EZ. That's compassion for you?

6. Does our tax system change? I wrote a book last year. The latest news then was that our current tax law has 45,562 pages with more than 7 million words. I recently read that our tax code with attendant judicial rulings is now over 55,000 pages.

   There is a group called "Gucci Gulch" in Washington, D. C. They were given this name because of all of the money that they throw around. They make up 53% of the political action committees (PACS) in Washington. Their sole aim is to gain special tax breaks for their client companies by donating money to legislators' campaign funds.

   With that kind of carrot in front of them, lifetime politicians can't ignore the temptation to accept money from these people, and to follow through with changes to the tax code.

7. Our current tax system has poisoned our economy and severely affected workers ability to get ahead. In 2002 we had a record trade deficit of $435 billion. Our 40% corporate tax rate has forced our companies to elevate their prices of goods and services to the point that foreign consumers refuse to purchase our products. Even Americans, who are price conscious, tend to buy lower priced products from countries that have value added tax (VAT) systems.

   Although we currently have a VAT system where every stage of production is taxed, our companies do not receive a rebate upon exporting their goods or services, and therefore, are not able to lower their prices. Millions of manufacturing jobs have left America. Service jobs, that we once took for granted, are also beginning to leave.

   The poor have no chance of getting ahead because of our current tax system. Our system has no incentives to save or invest for the poor or middle-class. In 2001 we had a national savings rate of minus one percent.

How does the FairTax meet these wishes?

• The FairTax is easy to understand and to deal with. It is a 23% retail sales tax on all services and new goods. Used goods are not taxed. Savings and investments are not taxed. Secondary education and training while on the job are considered investments, so they are not taxed.

• The FairTax replaces the income, payroll, corporate, gift, estate, capital gains, and self-employment taxes. The only tax form you see is the receipt when you buy a service or something new. Only retailers will have a federal tax form. There will be one question on one page, "How much in dollars did you sell to a final consumer."

• The FairTax treats everyone the same. There are no exemptions, or loopholes.

• The FairTax is clear and is shown on every receipt. However, excise taxes and tariffs would still be embedded in the prices and not shown on the receipt.

• The FairTax is compassionate and progressive. If you have accumulated wealth but are income poor the rebate will cover the cost of the FairTax for you. Even if you have no accumulated wealth, the FairTax allows you to save for a home or a college education much more quickly than our current system.

• Again, the rebate would cover the cost of the FairTax for you. According to our research, a family of four would not begin to pay any federal taxes until they had spent $24,240 (YR 2003 expenditures). Used goods or Education costs are not included in the expenditure as they are not subject to the FairTax.

• You could even make extra money with the FairTax system. By shopping wisely, buying used items, and perhaps growing some of your own food you could make extra money with the FairTax. The FairTax is progressive in nature because the more you spend, the more tax you pay.

There is no reason for the FairTax to change. There will be no point in "Gucci Gulch" lobbying for special treatment for companies when their clients pay no taxes. The FairTax rate could go up for a national emergency, such as war. Americans for Fair Taxation's research shows that as the economy improves the rate will go down.

It is important to remember that everyone will pay the FairTax so all consumers will see it on every receipt. A politician is going to have to convince a large number of Americans of the need to raise the FairTax. If a politician wishes to exempt some industry from the FairTax he will have to point out the increase in the amount of the FairTax because of the required shrinking of the tax base.

The FairTax will place an extra almost $2 trillion into the pockets of American workers every year. This will allow them to save and invest in order to achieve the dreams they all have.

They will be able to save for homes, or college, or retirement more quickly. Jobs will be abundant. Former head of the House Ways and Means Committee, Bill Archer, asked Princeton Econometrics to conduct a survey. The goal was to find out what 500 European and Asian companies would do if we enacted the FairTax here. The results were that 400 would build their next plant here. The other 100 said they would move their world headquarters here. The United States would become a sponge for the capital investors of the world.

Conclusion

We have an unprecedented opportunity before us to make the United States economy the most dynamic on Earth. We have (as of November 19, 2003) 42 Congressmen and 2 Senators signed onto our bill and over 450,000 AFFT grassroots members/supporters. Click here periodically for an updated list of congressmen and women who have signed-on as COSPONSORS!

U.S. House Bill H.R. 25, the FairTax Bill, (S.1493 in the Senate) will free our nation from the chains of restraint created by our antiquated tax system.

If you want to create jobs, and be able to save more money for your dream, sign the FairTax PETITION!

It'll also help to write your Congressman and Senators asking that they support the FairTax. Click here to write them.... WRITE CONGRESS! ...insert your Zip Code and the program will find them for you.

Be sure to tell your friends about the FairTax and invite them to sign the Petition. Print some one-page FLYERS! for hand-outs and for posting on bulletin boards in your area.

Order the book... America's Best Kept Secret: FairTax!

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