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Revolutionary
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Idea
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From Main Street to K Street, "The FairTax Book" has Ignited National Interest in Sweeping Tax Reforms
By Julie Clark
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"I believe that a better way to raise revenue not only can be found but must be found because I am convinced that the present system is leading us right back to the very tyranny from which those, who established this land of freedom, risked their lives, their fortunes and their sacred honor to forever free themselves ..."
-T. Coleman Andrews
Commissioner of Internal Revenue
1953-1955
The poignant pen behind the Declaration of Independence, Thomas Jefferson, once opined, "Every generation needs a new revolution." And according to Atlanta Talk Show Host Neal Boortz, we're about ripe for another one. But instead of throwing crates of tea into the Boston Harbor to protest the heavy taxes imposed by the British crown, some would like to chuck the IRS into the sea, along with the "Social Security tax, the Medicare tax, corporate income taxes, the death tax, the self-employment tax, the alternative minimum tax, the gift tax, capital gains taxes, tax audits, and some major headaches every April 15." In lieu of our current tax system, a national sales tax estimated at 23 percent on all new goods and services would be established. "It would be the largest transfer of power from the government to the people since the Revolutionary War," Boortz emphatically stated. "A transfer of power like that does not happen unless the people are insisting on it."
If book sales for "The FairTax Book" by Boortz and Georgia Congressman John Linder are any indication, it would seem "the people" are intrigued with the idea, and the cha-ching of cash registers has echoed all the way to Washington. Books on public policy usually are greeted with a collective yawn from the average American and typically, at best, head to the dusty libraries of government officials or, at worst, on the fast track to the bargain shelf, only to disappear into obscurity. But after its release this past fall, "The FairTax Book" shot to the top of the New York Times Best Seller List for several weeks in a row. It continues to turn heads on both K Street and Main Street America, while publicity tours have lured sell-out crowds to bookstores across the nation. "What has amazed people is that a book on tax policy could stay on the New York Times Bestseller List for six weeks," Linder noted. "Books like this typically sell by the dozen. There are 380,000 copies in print right now, and they are still selling. You cannot ignore an idea that is selling books like this. If books on public policy sell 40,000, they are a huge winner and this is way over that."
Meeting of the Minds
At first glance, Linder and Boortz appear more like the odd couple. On one hand, Republican Congressman Linder is a soft-spoken, diplomatic Southern gentleman, and on the other is WSB Radio's Boortz - a nationally syndicated, in-your-face Libertarian whose sharp wit has more bite than a pit bull in a poodle show. Linder supplies the hard cold facts of the plan, while Boortz makes tax reform sound rather exciting, if you can scarcely imagine. Boortz writes, "You've just picked up a book about taxes. What in the world are you thinking? Don't you want to read something more entertaining? Something with a few gratuitous sex scenes? I've never written a sex scene. Perhaps you'd feel a little better if I put one in the prologue. We could start with a little something about how Americans have been getting screwed by the current tax system for decades." Yep, not quite your granddad's tax book, indeed.
The two are as impassioned about this subject as if the fate of the nation depended on it. In fact, to show how much he supports the plan, Boortz has vowed to donate every penny he earns from book sales to charity. "I know the best way to keep the FairTax alive in Washington is to keep this book's sales going," he said. "I want to feel free to tell everyone to buy this book, without anybody saying you are just trying to line your own pockets. All I want is serious consideration given to this idea."
As for Linder, sweeping tax reform is not just a flight of fancy, but a lifetime mission. "I concluded a dozen years ago, that the current tax system cannot be fixed; it punishes capital formation and success, it rewards consumption. I also noted that 45 states get the majority of its money off of sales tax, and it seemed more equitable because everyone gets treated the same." Linder first introduced the bill in July of 1999 and reintroduced it in 2001, 2003 and 2005. This year, support has grown to include more than 50 co-sponsors and, according to Linder, high-ranking officials in both the House and Senate have tipped their support and are pushing for a vote. "I have done about 500 talk radio shows, I've traveled to 30 states and talked to a large group of people who have shown their support," Linder said. "Not to mention, we have 600,000 volunteers who have signed up for Americans for Fair Taxation."
He continued, "The book has raised the FairTax to a whole new level. People are talking about it; members of Congress are getting it mailed to them by their constituents. I get on the airplane and see people with the book."
So, What is the Fair Tax?
To be sure, if the IRS were abolished tomorrow, there would be few tears at its eulogy, but exactly what is the FairTax and who came up with the idea? Although both Linder and Boortz have been huge supporters of this revolutionary tax plan for years, it all began with an exhausted Houston businessman who returned from a board meeting complaining that 80 percent of their time was wasted on discussing tax compliancy, instead of thinking about their customers, employees and shareholders. A friend goaded him to quit complaining and do something about it, hence the Americans for Fair Taxation (AFFT) was born. This grassroots effort raised millions of dollars to invest in tax reform studies by economists at America's leading universities. With that, the FairTax plan took root. "Remember, The FairTax plan was developed by the private sector and by colleges and universities," Boortz said. "It was not a tax plan that was developed by politicians, so it is not necessarily created to benefit them or to add to their power base."
For starters, the FairTax is actually a replacement tax, rather than a reform. According to the Americans for Fair Taxation, the single rate federal sales tax (estimated at 23 percent) would be collected only once at the final point of purchase for new goods and services. (Note that the FairTax would be applied on Internet/catalogue sales and medical services.) Used items would not be taxed, nor would business-to-business purchases for the production of goods and services. In addition, each American would receive a monthly prebate calculated to ensure that the basic necessities of life are tax-free.
Next, you might want to pull out your paycheck and see exactly how much money you would be keeping in your wallet, according to the FairTax plan. Add together your Federal Income, Medicare and Social Security deductions and then, if you get paid twice a month, multiply by two. That would be the increase in your paycheck if the FairTax was enacted and the IRS was sent to that "place in the government guano heap of history it has so richly earned," as Boortz lovingly writes. Now take into account the monthly prebate of $491.82 for a family of four and add that into your monthly checking or savings account, as well. That is the estimated amount you would have to spend as you wish and would only begin paying taxes when you headed out to the cash register.
But has this ever been done before? Look no further than two of our fellow Southern neighbors. "The closest thing to a FairTax is in Texas and Florida, where they basically finance the operations of the 12th and 15th largest economies in the world with a sales tax," Boortz said. "It is an exclusive sales tax, however, instead of an
inclusive sales tax. In other words, you go buy an item that costs $1,000 and you add the sales tax to the $1,000. Whereas in the FairTax, when you buy the item for $1,000, the embedded sales tax is
already present in the price of that item."
Some might be aware of the European model of taxation called the Value-Added Tax (VAT), but Boortz points out these are completely different taxes. "The Value-Added tax is really insidious, because it is hidden from the people," he said. "When you go buy the item, then every single person who was involved in the manufacturing of that item - whether a strip of chrome along a door panel or fringe around a pillow - every one of these people pays a tax to the government ... So if you have a consumer item sold to the public that takes 25 business entities to bring that to the marketplace, [then] every single one of those business entities will pay a tax on their part of the production and pass that on to the consumer. In the end, the consumer has no idea how much tax there is, how it got there, or even that they are paying it."
Some might flinch at the idea of paying a federal tax on all new goods and services, but the book goes into great discussion on embedded taxes Americans pay every day. It calls to mind an extensive tax costs study completed a few years ago by Dale Jorgenson, former chairman of the Harvard Economics Department. He concluded that on average, 22 percent of the price paid for a consumer product signifies embedded taxes. Boortz and Linder contend that once the tax burden is lifted off of businesses, the cost of conducting business will fall, and soon afterward, thanks to a capitalist system, so will the price. For this reason, if the FairTax is passed, the difference in cost would be negligible to the discerning eye, Boortz said. However, Linder is careful to point out the nuances of the FairTax plan, if it were
enacted. "We don't want you to think that the prices are going to go down 22 percent and your wages are going to go up at the full amount," Linder said. "It's going to be somewhere in between,
because that money can't be in two places. So wages are going to go up, prices go down, a little bit of both."
If this tax plan were enacted, what would happen next? According to the book, growth, growth and more growth. Economists estimate that in the first year, the economy will grow by 10.5 percent, exports will increase by 26 percent, capital spending will rise by more than 70 percent, and the personal savings rate could increase by 76 percent. Some data even shows a drop of 30 percent in interest rates.
Questions Raised
To be sure, no tax plan is perfect (in a perfect world, no one would pay taxes at all!), and with such a bold initiative comes a flurry of questions, hypotheses and what ifs. How will it affect the poor and senior citizens? Will it create a vast black market? How will we repeal the 16th amendment that instituted the income tax? Without tax incentives, how will it affect charitable donations across the country? Boortz and Linder have been asked nearly every question imaginable and swiftly come to the FairTax's defense. Responding to questions about the low economic class, they believe the prebates will relieve their tax burden. Each month, every American would be paid enough to cover the necessities of life, either by direct deposit (as many Americans receive their income tax refund) or perhaps by the use of an issued debit card that would automatically update each month.
Regarding senior citizens, Americans for Fair Taxation respond, "As a group, seniors do very well under the FairTax ... Some
erroneously believe that people who live
exclusively on Social Security pay no taxes. They may not know it, but with corporate income taxes, they are paying hidden taxes averaging 23 percent (for goods) to 25 percent (for services) on everything they buy. Under the FairTax, they break even from the very beginning, because they only pay 23 cents out of every dollar they choose to spend on new goods and services, rather than anywhere from 20 to 30 percent in hidden taxes. And note, they elect to pay these through their lifestyle choices."
Criticism of the plan has stemmed from some interest groups, including the National Retail Federation, who are concerned how deeply it will affect the consumption economy. Some concerns revolve around the
creation of a mass black market to skirt the system. "Currently we have about two to three trillion dollars in the black market underground," Linder pointed out. "Today, you can cheat on your tax return by lying on your tax form, signing it and turning it in, and you don't even have to tell your spouse. You have a less than one percent chance of getting caught. In our system, it takes two people to cheat, both liable to go to jail for doing so. I don't know how many friends [you have] willing to go to jail to save you 23 cents [on the dollar], but I have none. On the service side, 80 to 90 percent of the money is going to come from the medical industry - are they going to help you cheat?"
Abolishing a constitutional amendment is not an easy task; however, it has been done once before in the days of Prohibition. (Passing the FairTax would require a majority in each house of Congress and the signature of the President, but a repeal of a constitutional amendment must be approved by two-thirds of each house of Congress and three-quarters of the individual states.) Both Linder and Americans for Fair Taxation say they would not support the FairTax unless the entire income tax was repealed. "We will spend $100 million to pass the FairTax and it would cost that much to repeal the 16th amendment," Linder reflected. "We may even change the bill that states it will only become effective upon repeal of the 16th amendment."
In regards to convincing state governments to repeal the income tax amendment, Linder believes that will not be much of a hurdle. "We will have a lot of help on this from the states, because the governors that I talk to would love to copy us on this. Secondly, the states would be enthusiastically supportive because at the federal level, we are going to collect the Internet and catalogue sales and remit it to the states. In 2003, the states lost $22 billion to Internet and catalogue sales. We think Georgia is probably losing $600 to $800 million to Internet and catalogue sales, and it's growing rapidly. That is something that the states can not afford to lose, and we are the only way to solve that problem."
In reference to charitable giving, he purports that the mass majority of Americans do not give to charities simply for a tax deduction. "I don't believe people give to charity for tax reasons. Plus, two-thirds of charitable deductions, we don't even deduct," Linder noted. Some leading experts also bring up concerns that the 23 percent sales tax is a low-ball figure and it could bounce as high as 30 percent, to which Linder responded, "Whatever it is, it's going to be less than you currently pay, because the consumption economy is so much bigger than the income economy." According to Linder, the consumption economy in 2001 was 8.55 trillion dollars, while the taxable income was 4.22 trillion. Which means you can have half the amount of tax on consumption that you have on income and generate the same amount of revenue.
You might think the IRS would be flailing its fists in the air against a bill that would abolish their jobs, but the response has been silence . . . except for one personal story from Linder. "When I first started talking about this, a man came into my office in Atlanta, walked right past my receptionist and just said that he had to talk to the congressman. He sat down across from me and said 'I'm not going to tell you who I am, but I'm a very senior manager in the regional office of IRS here. I hope you pass your bill.' I asked him why he said that, and he replied, 'Because the system is far worse than you think it is.' That is the only comment I've heard from the IRS."
Next Stop, Washington
With book sales still blazing and a burgeoning informed public, Linder is poised to bring the FairTax Bill (H.R. 25) to a vote before Congress sometime this spring. Linder pointed out that there is nonpartisan support for the bill, although, no one is suggesting it will be an easy battle. "We could likely get it through the House, but the Senate will likely not pass it. They would filibuster, but then we would run against everyone that held it up ... We will come to this point because we must. The
[current] system cannot be sustained. Our
plan collects the money not from 158 million workers, but 300 million citizens and 50
million visitors."
So, could two Georgians revolutionize the country's tax structure, as we know it? Only if average citizens embrace this plan as their own. "I really think we are looking at a vote, but only if the people of this country remain behind this legislation; they have to stay back there and keep pushing," Boortz said.
The idea of trashing the behemoth IRS and beginning anew with a consumption tax leaves many leery of such drastic changes. Boortz, however, calls to mind that no one put much stock in a disheveled group of colonists dressed in tattered clothes battling to defeat the illustrious redcoats either. "At what point in our history did we become afraid of radical change? America is about bold initiatives. Radical change? I don't care; we need radical change. One way or the other, we are going to have a complete change in the system of taxation."
According to the FairTax bill, every American would be entitled to a prebate each month to make sure that no one is taxed on the basic necessities of life. Below shows the prebate amount for up to a family of six.
The Fair Tax Prebate
Prebate
Family Size Monthly Annual
Single $183.43 $2,201.10
Married $366.85 $4,402.20
3 $429.33 $5,152.00
4 $491.82 $5,901.80
5 $554.30 $6,651.60
6 $616.78 $7,401.40
Source: "The FairTax Book"
Sidebar 2:
For More Information
"The FairTax Book: Saying Goodbye to the Income Tax and the IRS*"
By Neal Boortz and Congressman John Linder, copyright 2005
Americans for Fair Taxation
www.fairtax.org
Congressman John Linder
Seventh District of Georgia
http://linder.house.gov/
The Neal Boortz Show
Monday through Friday, 8:30 a.m. to 1 p.m.
AM750 WSB
www.boortz.com
Photo Credits:
John Linder: Photo courtesy of John Linder
Neal Bortz: Photo courtesy of Leland Holder Photography
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