My turn: Replace our economy crippling federal taxes

FairTax legislation would shift taxation from production to consumption

Posted: Friday, April 07, 2006

We have advanced the idea there should be a Boston Tea Party-type revolt against our federal tax system. It is unfair, complex beyond comprehension, burdensome, oppressive, invades constitutional rights and is harmful to economic growth and prosperity.

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The revolt advocated was not to stop paying your income taxes but to join in a national effort to replace a system which has been totally corrupted. Steve Forbes is correct when he says "the existing income tax system is beyond repair and the only solution is to repeal the laws which govern it, dissolve the IRS and replace it with a system which is simple, fair and transparent."

Is there such a plan? Yes, and bills have been introduced in the U.S. House and Senate. House Bill 25 was introduced in 2003 by Rep. John Linder, R-Ga., and Rep. Collin Peterson, D-Minn. Rep. Don Young, R-Alaska, is one of 50 co-sponsors in the House. Sens. Saxby Chambliss, R-Ga., and Tom Coburn, R-Okla., are co-sponsors of Senate Bill 25. The proposed legislation is patterned after a plan researched and authored by Americans for Fair Taxation known as the "FairTax." Former Sen. Daniel Patrick Moynihan, D-N.Y., remarked that the FairTax is "the most well-researched tax proposal to come before Congress ... a decade and more than $22 million in research."

The FairTax bills would shift the focus of taxation from production to consumption. It would abolish all federal personal, gifts, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment and corporate taxes and replace them with a federal retail sales tax. Everyone would get all of their pay each payday minus state and local deductions. Your gross pay becomes your net pay.

Studies from Harvard University identified that most Americans are not aware they are paying an average 22 percent tax embedded in every new purchase. With these embedded costs 90 percent removed, retail prices would drop, and the initial sales tax rate of 23 percent added to new goods and services, would leave retail costs roughly unchanged. The Fairtax will raise the same revenue as today. Business-to-business transactions are exempt. Social Security and Medicare are funded from the sales tax revenue.

All US Social Security cardholders would receive a rebate equivalent to the sales tax expected to be paid on essential goods and services called poverty level expenditures. The size of the rebate is determined by the Department of Health and Human Services' poverty level multiplied by the tax rate. It is called a "prebate" since it precedes the tax and requires no record keeping. The prebate eliminates the "regressive" argument that a national sales tax would penalize low-income families.

Low-income families would actually benefit because they would not have the combined Federal Insurance Contributions Act-Federal Unemployment Tax Act withheld (15.3 percent) and like everyone else would receive the prebate. Almost all Americans see a significant net gain.

Respected economists calculate the efficiency and incentive gains of the FairTax will also drive our economy to unprecedented new heights.

Economists estimate that reducing tax-compliance cost will cause real investment to grow by 76 percent, exports to jump by 26 percent, and interest rates to drop 20 to 30 percent. Billions more will be collected from the underground economy which is missed today.

The long-term effect on our trade-deficit will be dramatic. U.S. products will compete in foreign markets free of the approximately 22 percent current tax burden. With the FairTax, U.S. and international companies will re-locate to the United States because we will be a tax haven. High-worth Americans are moving their citizenship and much of their spending to other countries because of the 55 percent U.S. estate tax. The FairTax would bring these people and their associated jobs back home.

To learn more about the FairTax plan, visit FairTax's Web site online. For the FairTax to become a reality there must be a groundswell of demand at the grassroots level. Let's make April 15 just another nice spring day.

• Wiley Brooks is the Alaska director of Americans for Fair Taxation in Anchorage, and Donald N. Anderson is an Anchorage businessman.

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