I spent most of the evening one night this week neck-deep in Turbo Tax software, filling out the necessary Federal and North Carolina income tax forms. Like everyone else I know, I dread this every year. About 10 years ago, I heard a ranting, bloviating, egotistical, Libertarian radio talk show host named Neal Boortz launch tax season with a lengthy diatribe on an idea to eliminate these endless forms, not to mention eliminating the IRS and the 16th Amendment to the Constitution – the Fair Tax. It is a national sales tax that would completely fund the Federal government as it’s structured today, eliminating the need for Federal income and payroll taxes, and thus eliminating the need for the IRS to exist. I was intrigued and started reading up on it. Every year as I slogged through the filing process – and continued reading – the more convinced I became that this was the way to go. It also helped me divorce myself from my lifelong Republican ideology in favor of Libertarianism, leading up to my decision in 2016 to change my voting affiliation and become a dues-paying Libertarian Party member.
I posted on Facebook last night that I was doing my taxes, and wondering again why we have to do this crap every year when there is a better way out there. I had 2 people make a few comments – both longtime friends that once lived in Charlotte but now live elsewhere. One, a former minister at my church, called me a dreamer. No problem, I’ve been called a lot worse than that. The other is a self-employed realtor, who asked several questions and seemed genuinely intrigued. I decided the discussion was too lengthy for Facebook and I promised her I would blog about it in much greater detail.
Trivia question: How long has the US been collecting income taxes? Although the Declaration of Independence was written 241 years ago, and the Constitution was ratified 228 years ago, the Federal Income tax is only 104 years old. One of the main drivers that brought the fight for independence from England was tax policy. Colonists protested “taxation without representation,” meaning England was taxing the colonies but not allowing anyone from the colonies to have a seat in Parliament. As a result, when the colonial leaders sat down to write a plan of government for the new nation, taxes were high on the attention and sensitivity level, and would be carefully and thoroughly addressed.
Now is a good time to remind everyone that these leaders very deliberately rejected the notion of creating a true democracy. This term means what it sounds like – simple majority rules. Another word for it is mob rule. It is a dangerous form of government. People’s opinions can change direction like the wind does. A democracy would change fundamentally regularly as trendy opinions would emerge. Realizing the danger and instability of a democracy, the new nation’s leaders instead chose a form of government called a Constitutional Republic, where citizens would elect leaders on a regular basis to represent them in the governing bodies – the legislature, which would make the laws; and the executive, which would enforce the laws. There would also be a judiciary to interpret the laws. The members of the judiciary would be nominated by the executive and confirmed by the legislature. Thus was born for the Federal government, the President, Congress (House of Representatives and Senate) and the Supreme Court. The Constitution of the United States would serve as the supreme law of the land.
The new country’s leaders wanted to create a nation where the individual citizen had the liberty to carry on life’s activities as (s)he sees fit, with little interference from the government. The last thing they wanted to do was recreate England, where government had its hands in every aspect of the lives of the citizens, especially with money. Obviously, there would be some government needed for things like defense of the nation, building & maintaining roads, and some other things, and that government would have to be funded through some level of taxation. Most government would occur at the local level, with things such as property taxes. You will not find income tax ANYWHERE in the original Constitution or the first 10 amendments. This setup kept the real power in the hands of the citizens. Being an elected official was a position of servitude, not power to be lorded over the constituents. Somehow, some way, it became twisted and the elected officials viewed themselves as holding the power, and the constituents were subservient to them, rather than the other way around. Once this poison had infected most of the people in leadership positions, the push was on to concentrate more power within the ranks of a very few. Now the leaders began to manipulate information to stoke fear in the citizens that those who disagreed with them were just out for vengeance. Politicians saw the opportunity to transfer virtually all power away from citizens and into the hands of the political class. This tool is wealth envy. Politicians came along and told the citizens that everyone that had more money was a bad person. They have more money than you because they stole it, exploited helpless people for it, or just got lucky and inherited it. However they got it, they sure didn’t earn it, and isn’t that just wrong? If they didn’t earn that money, why should they get to keep it all? Shouldn’t some of it be given to you? Oh, and keep in mind that all those that have less money than you will view you the same way you are viewing those with more money than you. Don’t worry, we politicians will protect you from those leeches. It will be all right.
The real civil war had begun.
The Income Tax
Yes, I said civil war. The war fought from 1860-1865 is really the War Between the States. The true civil was came about as politicians were selling this wealth envy to the citizens in the early 20th century. And we fell for it, hook, line and sinker. Americans now hated each other based on income level. Everybody with more money than me is a crook that needs to be punished, and everybody with less money than me is a leech that wants to steal mine.
Now, we’re in 1912, suffering under Woodrow Wilson, the single worst President America has ever had. Germany was wreaking havoc in Europe and the continent was sinking into war, with some nations looking to the US to bail them out. The US economy was in the tank, and the wealth envy was in full effect. As it became more apparent that the intellectually-paralyzed President was not going to do anything to prevent us from getting dragged into the war in Europe, politicians grappled with how to pay for our involvement. A Federal income tax was proposed. But there was this little problem of the Constitution, which didn’t permit this atrocity. No problem, we’ll just pass an amendment. Needing a way to sell it to the people so they would pressure the state governments to ratify the amendment, the politicians tapped into the wealth envy and overall ignorance of the citizens. Only “very rich” people would pay this income tax, no more than the top 3% of the population. And it would only be temporary – this is just to pay for our coming involvement in the European war (which, once we officially entered, became World War I).
Folks, there’s a reason why in the Bible, God refers to us as sheep. It’s because sheep are the stupidest creatures in the universe. They can’t think for themselves, have no sense of direction and will follow anywhere they are led, even over a cliff. We as humans aren’t much better. We enthusiastically bought this steaming pile of cow dung called the Federal Income Tax because we were stupid enough to believe it was temporary, and that only the few, hated “rich” people would pay it.
The tax becomes permanent
The armistice to end World War I was signed in November of 1918. Believe it or not, the politicians made no move to repeal the Federal income tax. We still need it to pay for other stuff, we were told. Over time, it was expanded from the top 3% to everyone, and the rates continued to climb. During World War II, Congress instituted the concept of payroll withholding – taking what was the expected income tax obligation out of a person’s paycheck before the person received it. While this eliminated the need to keep money on hand to pay your tax bill every spring, over time it rendered most citizens ignorant of how much of their income was being confiscated by the government. Today, most citizens have absolutely no idea how much income they are losing. They might even say, “Not only did I not owe any income tax, I’m getting some money back!”
With the income tax now firmly entrenched, politicians can now use fear tactics to get themselves re-elected. “If you vote for my opponent, (s)he is going to make you pay more taxes, and let rich people pay less!!” Also, “If you vote for my opponent, (s)he is going to take even MORE of your money away and give it to others!!” We are inundated with ads screaming, “Vote for me. The rich aren’t paying their fair share! I’ll make sure they do!!!!” The longer this is allowed to go on, the worse the vitriol gets. In my opinion, this is the leading cause of the current toxic environment where people genuinely believe, “If you believe different from me, you are evil.”
The Fair Tax
This has got to stop. And yesterday. I am so sick and tired of watching politicians play with real people’s lives, living their own lives as if being a politician makes them a higher life form than the rest of us, telling us whatever lies they think we will fall for to keep them in their powerful elected office. How sick would George Washington, Thomas Jefferson, James Madison and all the other heroes that founded this nation be if they could see what is left of the Republic they built. It’s all about ideology now, with absolutely no tolerance for differing opinions. It is long past time to restore our Republic to the high-functioning Republic it was when it was founded. The Fair Tax will do that. A lot of what I will write here comes from the website https://fairtax.org/index. You could sit on that site and a few sites it links to for several hours.
The Fair Tax is a national sales tax that replaces all Federal taxes deducted from your paycheck that would fully fund the Federal government in its current state, cutting nothing. It would be a 30% tax on all new goods and services. (The key word there is “new” – if you buy a brand-new home or car, you would pay the sales tax, but if you bought a used car or a home previously owned by someone else, there would be no tax applied). “GOOD GRIEF!” you are thinking. “A 30% tax? Half the country would be bankrupt in a week!” Actually, everyone will have more money in their pocket. I will explain.
Let’s say you go to your local grocery store and buy a loaf of bread for $2.00. Did you know that 22%, or 44 cents, f that $2.00 price is embedded income tax? The farmer that grew the wheat had to pay income tax. Wonder, or Nature’s Own, or whatever company that actually made the bread, had to pay income tax. The local grocery store had to pay income tax. All of those income taxes get included in the cost of the bread and passed on to the consumer. On top of all that, most states have a food tax of 1-2%, so the bread probably costs $2.04 or $2.06. If there is no income tax, the real price of the loaf of bread is $1.56. Now you add in the 30% sales tax, and the price of the loaf of bread is $2.03. “You’re dreaming,” you say. “All corporations are driven by greed. The bread isn’t going down in price to $1.56. It’s going to stay at $2.00, the greedy corporations are going to keep the extra, and how we’re stuck paying $2.60 under your stupid plan.”
You know what? At the beginning, you may very well be right. Fair Tax advocates usually say, “Market pressures will reduce the price to the new level.” But there’s a simpler way to say that.
Whether you love Walmart or hate it, facts are facts. They sell almost everything under the sun and they do it at lower prices than everyone else. Publix or Safeway or Kroger or Harris Teeter might try to keep the bread at $2.00, but you can bet your last dollar that Walmart is going to undercut them. Also, you ever notice how whenever one airline announces a fare change, it’s about 4 seconds before the rest of the airlines match it? There are two examples of “market pressures” for you. It applies to every other freely-traded good and service. Somebody is going to drop the price in an attempt to grab more market share, and everybody else is going to fall in line. The one that goes first will be the one that first grasps the fact that they are not losing one cent of profit by selling at the new, lower price.
Let’s go bigger. If prices all include 22% embedded income taxes, the price of a new, $300,000.00 house has $66,000.00 in embedded income taxes, the real price of the house is $234,000.00. Add on the Fair Tax and the house is $304,200 – and you have a bigger paycheck because there are no Federal income or payroll taxes taken out.
Yes, let’s talk about those payroll taxes – you know, the Medicare/Medicaid/Social Security taxes. They don’t get taken out of your check either. Let’s remember that the government takes 6.2% of your check for SS taxes, and your employer has to match it. You don’t think that the 6.2% tax is doing anything to your wages? Of course it is. If you are paid $20 an hour, both you and your employer are each paying the government $1.24 per hour in payroll taxes. If your job pays you $30 per hour, you each have to pay the Feds $1.86 in payroll taxes. That’s a difference of 62 cents per hour, or $1,289.60 per year. If there are 1,000 people working in your plant at that pay rate, the plant is saving $1,289,600.00 per year in payroll taxes by keeping the hourly pay rate suppressed.
The same logic applies here as applies to the prices of things without the embedded income taxes. The argument of companies hoarding the excess cash for the executives or shareholders is probably stronger here. But there is likely at least a handful of companies that would split the extra cash 3 ways – perhaps 2% to the employees, 2% to the shareholders (probably through a dividend increase) and 2.2% to the execs (through their bonuses). Even at that rate, the $20 per hour worker now makes $20.40, which is an extra $416.00 a year – subject to no Federal taxes, of course. In this day and age, anyone living in a home that brings in wages of $20 per hour will tell you that the extra $35 a month is a real difference. And we haven’t even talked about the prebate yet.
“OK, what is a prebate?” I’m so glad you asked. We’re all familiar with the concept of a rebate – it’s a payment given back to you after the purchase of a product or service. “You can have this fabulous phone for only $99.00 after mail-in rebate!” You have to pay $199.00 for the phone, then you get a $100 rebate later. A prebate is the opposite, where your discount is paid before the purchase rather than after.
Remember the name of this concept – the FAIR Tax. One reason why it is fair is that it requires no one to pay the national sales tax on the bare necessities of life. How do you quantify that? You use the already-established Federal guidelines for the definition of poverty. In Charlotte, the poverty line for a family of four is $24,250. For a couple, it’s $15,930. So let’s calculate the prebate for the family of four. Under the Fair Tax, spending $24,250 in a year would incur sales taxes of $7,245. This income level of $24,250 is what the government has determined will pay for only the bare minimum for the family to survive – food, clothing and a place to live. Having to pay sales tax on these bare necessities would prevent the family from having them, so the government would furnish them with the money to pay the sales taxes on these bare minimums before they have to pay them. This family would get $606.25 on the first of the month, so they would have the money to pay the sales tax on the bare necessities ahead of time. Then they would only be paying taxes on whatever they purchase beyond the poverty line. For example, a family of four that has $30,000 in income, or $2,500.00 per month, would first see the prebate of $606.25. The family could then carry on its normal business, and over the course of the month would incur $750.00 in sales taxes if they spend the entire $2,500 that month. But since they got the $606.25 prebate at the start of the month, they would only have lost $143.75 to taxes. If the family had a monthly income of $8,000, they would still get the $606.25 in prebate for the sales taxes on the bare necessities. If they spend $7,000 of the $8,000, they will incur sales taxes of $2,100 for the month, or $1,4375 lost to taxes.
This treats everyone equally. NO ONE pays sales tax on the things that are required to stay alive. Once you have those needs met, your net tax bill is entirely in your control – the more you spend on new things, the more you pay in taxes. The less you spend on new things, the less you spend in taxes. Remember, the tax is only applied to a NEW product or service. Used cars, houses that have had a previous owner, clothes at Goodwill or thrift stores, and a previously-owned pistol you buy at a gun & knife show would all be tax-free, because they were already taxed when they were sold for the first time.
Once all of America realizes the politicians no longer control their wallets, passing the 28th Amendment to the Constitution, to repeal the 16th Amendment and eliminate the IRS from existence, will be a mere formality.
You have no Federal taxes taken out of your check. You stand to get a raise when the tax is first implemented as the incentive for employers to suppress wages is removed. You pay no taxes on the bare necessities. Market pressures ensure the price increase is much smaller than your increase in disposable income. You don’t have to waste hours, days or weeks every spring trying to comply with a tax code that now exceeds 4 million words. You never have to worry if the IRS is going to start hounding you and garnishing your wages because they found that there was an apostrophe missing from your 1040 EZ form 5 years ago, while they let huge companies get away with massively cheating the system. And best of all, you get to witness the greatest transfer of power from politicians to citizens you will ever see in your lifetime. And the next time you hear some political hack tell you to vote for someone because the opponent is going to take your money away, you will know that he is speaking fiction because the wealth envy civil war is over, and any argument over fair taxation is moot.
I encourage you to comment. Would love to hear others’ thoughts.