The Conscience of a Realist

Gary Johnson on a fair tax system for America

By , Communities Digital News

Gary-Johnson

OCALA, Fla., February 5, 2014 — Everyone has probably heard the old saying which claims that the only sure things in life are death and taxes.

While each of us is obligated to pay something so our government can function, there is debate over not only how much this should be, but how to pay in the first place. That is where the debate over America’s most famous tax, namely that on earned income, begins.

Some say that the federal income tax should be repealed. They claim that a replacement called the “fair tax” ought to be considered.

Many have heard about the fair tax, but fewer know much about it.

“Simply put, the Fair Tax is a consumption tax, rather than a tax on income,” former New Mexico Governor Gary Johnson explains to Communities Digital News. One of America’s foremost libertarian voices, he stood as a candidate for the 2012 Republican presidential nomination. He ultimately left the GOP to run as the Libertarian Party’s standard-bearer. Today, Gov. Johnson continues his advocacy for individualist public policy.

He continues: “The basic idea, embraced by many economists, is to eliminate virtually all federal taxes, from income taxes to payroll taxes, and replace them with a single tax on purchases.  In the most widely accepted version of this consumption tax, the rate paid on purchases would be 23%, which roughly equates to the lowest current income tax rate of 15% plus payroll taxes.  Key to the concept is a “prebate” that would provide every household with an advance tax refund each month that would have the effect of exempting purchases of necessities from the tax.” 

Gov. Johnson is far from alone in his support of the fair tax. Dan Mastromarco is an Annapolis-based attorney who has been leading the charge for years on fair tax-related matters. He tells CDN that the fair tax “is revolutionary legislation introduced in the House and the Senate that consigns the income tax it to the cairn of history. The concept is to raise necessary governmental revenue – not from the fruits of our labor – but from what we choose to consume beyond the necessities of life.

“It is best described as a total tax replacement plan because it replaces the individual and corporate income, payroll, and estate and gift taxes, with a 23 percent national retail sales tax on the consumption of new goods and service without exception. The FT does not tax educational expenditures, investments, business inputs or charitable donations.”

Some say that a national sales tax would eliminate the prospect of economic growth. What can be said about this idea?

“To the contrary, I am convinced replacing taxes on income and productivity with a consumption tax would provide a tremendous boost to growth,” Gov. Johnson says. “Workers would actually receive their entire paychecks, without the federal government taking a huge cut.  Then, their tax burden would be determined by their purchases, not their incomes.

“Likewise, if, as even President Obama has said, reducing the business tax rate by a few percentage points would create jobs and growth, just imagine the job creation that would result from eliminating income taxes on businesses entirely.  I firmly believe that change alone would create millions of jobs.”

Mastromarco claims that “(s)uch an idea has zero support in modern economic thought. What recommends the FT, side from the salient effects on fairness and civil liberties, is its salutary effect on economic growth. Growth results from the replacement of our special interest, exception-laden tax system with one designed by economists  (a neutral system that broadens the base more than any other plan that does not twice tax returns on capital).”

He goes on to mention that “(t)he FT Plan eliminates the tax bias against work, saving, and investment, leading to substantially higher rates of economic growth, faster productivity growth, more jobs, lower interest rates, and a higher standard of living for Americans. Laurence Kotlikoff estimates the FT increases capital stock over the century by 96 percent – 44 percent by 2030 – increasing real wages by 17 percent over that same period rather than declining by 8 percent. Beacon Hill Institute estimates GDP increases of 8 percent in year one.

“Wages would be 10% higher in year one and throughout the decade. The FT would in fact eliminate a projected decline in our wellbeing.”



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Joseph Cotto

Joseph F. Cotto is a social journalist by trade and student of history by lifestyle choice. He hails from central Florida, writing about political, economic, and social issues of the day. In the past, he was a contributor to Blogcritics Magazine, among other publications. He is currently at work on a book about American society.

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  • Trialkat

    From one Ocalan to another nice job Mr. Cotto on this piece about Gary Johnson. Johnson recognizes that the latest developments in public policy pertaining to health care will further weaken the ability of the government to fund all of the farm bills, safety nets and a large military and that the only way to take control of spending is to get control of revenue. There is too much political power tied to the income tax system and K Street lobbyists. Repeal the 16th Amendment, take us back to a simple, visible form of taxation where the taxpayer controls when, why and how much they are taxed based on their consumption. While the FT is not perfect no system is. It is clear that 74,600 pages of Income Tax code is strangling our economy. Thank you Gary Johnson for supporting HR-25.

  • Yankee

    The “Fair Tax” is a Fraud – we need a 10% “Tithe” Tax!

    I am a retired lifetime tax consulting professional (JD, LLM in Taxation, CPA, co-author of a 3 volume tax treatise, lecturer), with no financial stake in ANY tax system. This only a brief summary – for supporting details of all comments, call Stephen C. Eldridge tel. 423-532-7337.

    The so-called “Fair Tax” (“FT”) is a fraud – it is MORE WEALTH REDISTRIBUTION, AND a financial SCAM.

    In their own words, FT proudly advertises that it is MORE PROGRESSIVE (yes, it INCREASES WELFARE).

    Of prime importance, the Prebate is NOT a real refund of FT paid as it appears to be. It is a new $600B ENTITLEMENT, which would ALL Americans receiving a substantial monthly check from the federal govt – a very bad idea for those of us who are not Socialists. We simply cannot afford yet another huge entitlement that will only be increased in the future.

    The FT and the Prebate would leave the working poor making no contribution at all to funding the federal budget and paying nothing even for their personal SS/Medi benefits. The FT and the Prebate FT then extend tax welfare to the non-working poor –and also take the next Progressive Cloward-Piven step towards giving SS/Medi to all regardless of work, by removing the tax “penalty” for reporting SS Wages, thereby “inviting” the fraudulent reporting of SS Wages.

    The Prebate is apparently calculated to merely repay the poor for any FT they pay, but actually would pay them far MORE than any FT they might pay (by “assuming” the poor spend MORE than the underlying HHS Poverty Guidelines and also by “assuming” they will pay FT on ALL of their purchases, but they WON’T) – and FT also provides free SS/Medi to the working (and some non-working) poor.

    The
    FT produces a 40-70% in-your-face retail sales tax that. would spark a taxpayer rebellion that would destroy our retail-sales-sensitive economy. 40% = 30% (not 23%) FT + e.g., 10% S/L sales tax and 70% is the rate needed at a sample 30% FT evasion rate (the FT incredibly assumes ZERO evasion and ZERO intentional reduction in spending and ZERO migration from new to used goods).

    IN ADDITION to that 40-70% tax, the FT contains several HIDDEN TAXES. 1) FT’s 30% rate is really 42+%; the 12+% is hidden by having fed + S/L govts paying FT – ultimately, they
    must get that money from you. 2) The initial 30% rate is 1-5% short and that plus any other revenue shortfall will have to be made up by raising more FT (or a NEW Income Tax), 3) The fed budget will rise for a) higher SS benefits and higher COLA’s of nearly
    30%, and for b) fraudulent new SS benefits invited by FT’s removal of the “tax penalty” for reporting SS Wages, – more FT (or a NEW Income Tax) we be required to fund these.

    fraudulent new SS benefits invited by FT’s removal of the “tax penalty” for reporting SS Wages, – more FT (or a NEW Income Tax) we be required to fund these.

    The NEW IRS (i.e., the STAA) may well be far worse, far more invasive than today’s IRS (the buyer is liable to pay FT and get/show a receipt – The STAA may audit consumers) – also we may well have to file an “Annual FT Summary”.

    We may well wind up with BOTH a NEW Income Tax AND the FT, when Congress repeals the FT’s Sunset Clause and enact a NEW Income Tax .

    Seniors will start to pay for SS/Medi again and some will pay a 2nd-3rd tax on their earnings. Many middle class seniors will pay more FT than they would have paid in Income Tax and many will lose purchasing power because of 1) the nearly 30% price increases and 2) the higher S/L & federal taxes required because they must pay FT and can only get the funds from us, and 3) higher federal taxes due to higher SS & pension COLA’s and fraudulent SS benefits.

    The FT promises grand economic benefits which are all UNPREDICTABLE – mere Hype & Change.

    What we need is a Flat Income Tax with No Deductions, No Exemptions, No Credits and a 10% rate, with business income taxed to shareholders on a very simple basis (i.e., no corporate income tax) – See H.R. 1040, but with changes as noted here (IRS is neutered, 1 page tax filing,
    everyone pays – more evolutionary). Call your representatives in Congress and let them know that this is what you want.

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