How can Congress replace the income tax?

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OCALA, Fla., February 11, 2014 — If one thing is always unpopular in American life, it is paying federal income taxes. A number of alternatives have been proposed as fairer, simpler, or more efficient ways to raise government revenue. One of them is called the “fair tax.”

The fair tax is a national sales tax proposal designed for simplicity and to treat all individuals equally. Whether they know much about it, the odds are that many have heard arguments against the fair tax. One of the most popular claims is that a national sales tax would be regressive, and therefore burdensome to the impoverished.

“The prebate, which grants taxpayers an up-front tax refund each month, addresses that concern directly,” says former New Mexico Governor Gary Johnson. “By refunding the tax, in advance, each month for purchases of necessities up to the poverty level, everyone is treated equally, regardless of income or assets.”

One of America’s strongest libertarian voices, Johnson 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, Johnson continues his advocacy for libertarian public policy.


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 “(a) fundamental premise of the FT is that we ought not to tax Americans before they have met their basic needs. The FT is the only plan that un-taxes the poor by not taxing spending up to the poverty level; hence no poor person is paying any tax and no household is paying tax on the necessities of life.

“This prebate makes the FT progressive because the effective rate climbs with expenditures. For example, a married couple with two children with taxable spending of $62,404 would pay 11½ percent.” 

How might the federal government go about replacing the income tax with a fair tax system?

“It is actually rather straightforward,” says Johnson. “All existing statutes requiring the collection of taxes based on income would be repealed, the IRS abolished, and Americans would no longer be required to file annual returns. The most popular Fair Tax proposal is very well-designed and, I believe, anticipates virtually all of the potential complications from what would clearly be a dramatic change in the way the government is funded and operates.”

Mastromarco claims that “(t)he Congress can enact HR 25/S122 (the FT) and the President can sign it into law. But replacing hidden taxes with more visible taxes is more easily said than done. We need to create the infrastructure for change to break Congress habit of appropriating through the tax code. The IRS should be required to disclose the entire costs of the tax system imposed on American taxpayers e.g. $430 billion in compliance costs, as truth in labeling on the return, not just their immediate budget but their mandates.

“The CBO or Treasury should be required to estimate the tremendous economic loss stemming from high marginal tax rates. We need to have Americans feel the pain of the current system before tax reform will be on their agenda. The greatest impediment is citizens who bury their heads in the sand unwilling or unable to see the taxes and costs of the current system.”

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  • jimd

    The FairTax is a GREAT idea and one who’s time has come! I’m sure “Yankee” and his minions will post here that it is a “hoax” or “fraud” but nothing could be farther from the truth. It is the best researched tax reform bill we’ve ever had. It was developed by Economists – not Politicians and would bring an end to the Income tax and all those who profit from it – like people who have spent their life as a tax attorney and supposedly have no “interest” in any tax system….

    • 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 (retired with no continuing financial intrest in ANY tax system, promotng a flat tax which eliminates tax preparers and would likely pay LESS FT thanIT) . 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 have 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 payable to all federal retirees, both induced by FT’s price increase 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.

      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

      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 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 0let them know that this is what you want.

  • jimd

    2013 marks the 100th anniversary of the passage of the 16th amendment
    and imposition of the income tax. Since that time our tax code has
    grown from 400 pages to over 75,000 pages and counting. For 100 years
    Americans have been discouraged from working. How many times have you
    said or heard “I don’t want to work overtime because I’ll just pay more
    taxes…” Our economy and the American people lose almost a trillion
    dollars a year in productivity and real money spent on taxes due to our
    overly complex tax code. The IRS is the most feared institution of our
    government.

    It’s time for change.

    The
    FairTax plan is a comprehensive proposal that replaces all federal
    income and payroll based taxes with an integrated approach including a
    progressive national retail sales tax, a prebate to ensure no American
    pays federal taxes on spending up to the poverty level,
    dollar-for-dollar federal revenue neutrality, and, through companion legislation, the
    repeal of the 16th Amendment.

    The FairTax Act (HR 25, S 122) is nonpartisan legislation. It
    abolishes all federal personal and corporate income taxes, gift, estate,
    capital gains, alternative minimum, Social Security, Medicare, and
    self-employment taxes and replaces them with one simple, visible,
    federal retail sales tax administered primarily by existing state sales
    tax authorities.

    The FairTax taxes us only on what we
    choose to spend on new goods or services, not on what we earn. The
    FairTax is a fair, efficient, transparent, and intelligent solution to
    the frustration and inequity of our current tax system.

    The FairTax:

    1. Enables workers to keep their entire paychecks
    2. Enables retirees to keep their entire pensions
    3. Reduces the cost of American products shipped overseas allowing them to compete fairly with products made elsewhere
    4. Ensures Social Security and Medicare funding
    5. Closes all tax loopholes and closes the door on our elected officials trading tax preferences for campaign dollars
    6. Brings transparency and accountability to tax policy
    7.
    Is Progressive, NOT Regressive because it refunds in advance the tax
    paid on purchases of basic necessities to the poverty level. FOR
    EVERYONE.
    8. Abolishes the IRS

    Passing the FairTax would:

    1. Result in tremendous
    economic growth in the United States promoting free enterprise and
    capitalism as companies come back to the US to produce products tax free
    on US soil

    2. Result in smaller government by abolishing the IRS’ 100,000
    employees and $11.7 Billion dollar budget. (We don’t need to be
    subsidizing their jobs and with the economic boom created by the FairTax
    they can find another job in the private sector.) Not to mention
    eliminating
    the Hundreds of Billions of dollars American’s spend on Tax Compliance

    3. Reduce government intrusion into our private lives. No more
    invasive federal tax forms to fill out. You pay your tax at the cash
    register

    4. Tax the shadow economies such as drug dealers and prostitution –
    or any persons doing a strictly cash business. These people currently
    pay NO Federal Income Tax because they don’t report the income. They do
    however buy things – which is where the FairTax would capture
    their portion of their tax

    TO BE CLEAR: The FairTax is not a Flat Tax, nor is it a VAT. Please
    don’t get them confused. A Flat Tax is still an income tax and, it
    leaves in place payroll taxes and would do virtually none of the above.
    It also leaves the code open to manipulation by lobbyists and Congress.
    A VAT (Value Added Tax) like in Europe applies tax at each stage of
    the manufacturing in business to business transactions and is in effect a
    hidden tax. A VAT is bad. The FairTax only taxes transactions at the
    FINAL POINT OF SALE

    • Yankee

      jimd is vefy good at parroting FT propaganda, but it all falls apart under thougtfull professional analysis.

      Please read my summary below jimd’s next comment and call me for the supporting details.

    • Keith Leenheer

      As a Fair Tax supporter I have to say that you summarized it better than I have seen before. It truly is a no brainer when comparing it to any other plan.

      Good people used their own money to develop it for the good of the Country.

      The way it is done now, it’s like hogs at the feeder gorging themselves with our tax money. I am of course referring to the lobbyists carving out money for their constituents. It has to stop it’s going to break us.

      • Yankee

        Keith,
        ou may think it a good summary, but it inly summarizs a lot of superficial, false propoaganda.

        Please read my summary of the FT’ fatal flaws, in my reply to jimd’s 2nd comment.