Sunday, October 01, 2006

Submission for the Record

The Committee on Ways and Means Hearing on Member Proposals on Tax Issues Introduced in the 109th Congress.

My name is *********************** and I am a FairTax Supporter. I am urging this Committee to give the FairTax reasonable, if not priority consideration as a replacement for our current system. The current system of taxation we have not only penalizes those who produce the capital that drives our GDP, but it is as equally damaging to the workers in the US Economy. The current system is so filled with loopholes, bylaws and exceptions a Tax Preparation company even made a mistake when they filed![1] The current system is an indecipherable morass that not only encourages legal means of keeping income from being taxed, but also provides a springboard for politicians to solicit votes determinant upon adding even more loopholes to benefit those who got them into office. The resulting mess the current system creates is a drain on our economy, the workers in the economy, and the businesses that provide employment to the workers. The following additional information will validate all of my contentions regarding the current system and show that the FairTax is the only way to produce real tax reform.


Tax-Exempt OFC’s versus an even more revitalized economy

When you read about items called Offshore Financial Centers, it kind of makes you wonder just how much capital is sitting inside them. The fact is that they are so secretive that a specific answer may never be known, but a high end estimate puts the amount at 11.5 trillion dollars with Hedge funds possibly being in the amount of 1 trillion dollars or more.
[2] Though you can imagine that there may be some alleged concern about this at the Federal Government level, the fact is that under our current tax code this is perfectly legal! The current tax system with its onerous and unforgiving tax on capital and labor even encourages the formation of OFCs! Corporations and high net worth individuals worked too hard for their money only to surrender an obscene percentage in taxes. This damages the US economy in two ways: First, the money sitting in these OFCs and hedge funs is not creating any tax liability, but nor is it working within the infrastructure of our economy. Secondly, the more ruinous the taxes become as our economy grows, the more money that will be diverted to these funds, exacerbating the aforementioned. Who will be the ones picking up the tab for any tax increases, the person or corporation with the OFC, or the rest of the people paying taxes? Be advised that it is our CURRENT tax system that all but encourages this! What benefit would the OFC holders gain if they invested their money? Any profits would be offset by the taxes on the labor involved in investing it, and tax on whatever capital gains they make, so, as it stands, they get a better deal investing in a OFC.

With the FairTax, that all of a sudden changes. Now the only point of taxation is for new goods and services. Capital gains would no longer be taxed. Now that OFC holder has an incentive to bring back the money they have in their OFC and put it back into the infrastructure of our economy. Even a basic economist could tell you what the effect of 11 trillion dollars would have if it were invested into our infrastructure. To the naysayers who say this would not necessarily happen, they would be wrong. High-wealth individuals and corporations will always look for ways to improve their investment leverage. The FairTax is the only way to bring that OFC money back home where it belongs.

Is there really a Fair Tax?

Is there really a fair tax? It is so stated in The Constitution that our Federal Government does have some responsibilities, and the only way to fulfill those responsibilities is through the acquisition of revenue.

Our Current System: Not only does the IRS cost nearly 10 billion dollars
[3] to support, the current system encourages people to legally hide assets in OFC accounts that only benefit the holder of the said account while the tax burden on labor and capital reduces opportunities in our economy for gainful employment. The myriad taxes even the poor have to pay are unconscionable to an extreme.

The Flat Tax: At the first impression, this seems like a more equitable system, except when you consider that the tax is still on capital and labor; the workers are also liable for FICA and Medicare taxes on an ongoing basis. Also, the same slew of deductions and exemptions are in place as with our current system, allowing politicians to play political football with the aforementioned. The flat tax also still leaves an onerous IRS or IRS-like entity in place. This solution is no real reform at all.

The FairTax: The FairTax is a revenue neutral 23% federal consumption tax placed only on new goods and services. By refunding taxes up to the poverty level for EVERYONE, it treats all fairly; in essence, the poor would be paying no tax at all. The IRS would be eliminated at a savings of 10 billion dollars, and the tax becomes transparent in relation to our current morass. Instead of funding Social Security and Medicare on the backs of the workers, you would fund these programs from the multitude of purchases made. Under the FairTax, any new product or service would be taxed at that rate. This federal consumption tax would replace the already imbedded taxes in the products we currently purchase. Without the taxes on capital and labor, workers have more money in their pockets and corporations would no longer have any reasons to justify an OFC; those trillions of dollars would go into our infrastructure. In short, this is as Fair as it gets.

Conclusion

Long gone are the days when a single economy of a country could stand on its own. These days it is a worldwide interlinked economy. If something bad happens to this economic model, it reverberates through out the structure until a neutralization factor comes into play. The same thing occurs when something good happens. The effect of The FairTax on the world economy would be overwhelmingly positive, from more money in our infrastructure, to a level playing field for our products. At the moment, we may be on top regarding our GDP, but it is not a good idea to rest on our laurels so to speak. China’s economy is burgeoning, and the only way we can keep the lead is by sustained growth. The FairTax will fuel growth at an unprecedented rate. It should be at the forefront for a replacement system for taxation if not chosen outright as the best solution that addresses multiple issues that we have in this venue.


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[1] http://www.consumeraffairs.com/news04/2006/02/hr_block_mistake.html
[2] http://www.opendemocracy.net/globalization-vision_reflections/offshore_3375.jsp
[3] http://www.irs.gov/pub/irs-utl/budget-brief-05.pdf.