Bobby L. Austin, Statement
I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
— Winston Churchill
Recent news articles clearly show that America is losing jobs to overseas countries and is losing billions of dollars in tax revenue as a result of our convoluted, anti-business tax structure.
Huntsville Times (AL), 15 December 2010. “Sleeping bag maker may close.” Exxel Outdoors, a Haleyville, Alabama sleeping bag manufacturer may close because it cannot compete with sleeping bags produced more cheaply in Bangladesh. Because the sleeping bags do not qualify as textile or related products the Bangladesh manufacture is able to ship the bags tariff-free to America. The unemployment rate in Winston County is 18%. Exxel is the last manufacturer of this type of sleeping bag in America.
Huntsville Times (AL), 29 December 2010, “U.S. firms hiring overseas.” Sales are up in other countries more than in America. The Economic Policy Institute says American companies have created 1.4 million jobs overseas this year compared with less than 1 million in the United States.
Huntsville Times (AL), 25 October 2010, “Tax loopholes let Google save $3.1 billion.” Google uses a strategy known as Double Irish or Dutch Sandwich to drastically reduce taxes. This technique involves “Transfer Pricing,” transferring profits, through paper transactions, from countries with high tax rates (such as America with a 35% tax, highest of industrialized nations), through Ireland, to countries with zero tax rate, such as Bermuda. Facebook is preparing a similar strategy to transfer funds to the Cayman Islands. Hundreds of multinational companies use some version of the method according to Richard Murphy, director of Britain-based Tax Research, avoiding most taxes in all countries.
America needs to be one of those countries with a zero corporate tax rate. The Fair Tax Act, H.R. 25, will make that reality. The Fair Tax does all of the good things that other proposed tax plans do, and more. Neither the flat tax nor the VAT provide a zero corporate tax rate and at the same time lowers the tax rate paid by individuals, protects low income families from a regressive tax system, and fully funds Social Security and Medicare.
The Fair Tax is a nonpartisan tax plan based on $22 million of privately funded research under the auspices of Americans for Fair Taxation. It was developed, independently of any other proposal, over the course of several years by noted economist after extensive market research was conducted into what the public desired in the way of a national tax system. An extensive account of the development of the plan can be found in the book, FairTax: the Truth, by Neil Bortz and Congressman John Linder.
The Fair Tax eliminates all income based taxes for both corporations and individuals. It replaces those taxes with a 23% sales tax, which is included in the price of items and is shown on the sales receipt. Income, Social Security, Medicare, capital gains, interest, AMT, gift, and estate taxes are all eliminated. Thus, individuals take home more pay and are encouraged to save and invest. Only new goods and services are taxed at the ball final consumption only…used goods are not taxed. Business-to-business sales that are used in the production of a product or service for final consumption are not taxed.
All taxes ultimately are paid by the consumer. Nobody else pays the taxes. Corporations don’t pay taxes. They collect them, but they don’t play them.
Dr. Milton Friedman. Comments to the president’s advisory panel on Federal tax Reform, March 31, 2005.
Corporations do not pay taxes… consumers pay taxes; therefore, it is reasonable and logical to tax at the consumer level.
International Competition — A non-government and a government study show that business taxes and tax preparation add 22% and 24%, respectively, to the cost of American products and services. Thus, the cost of American products and services will decrease by about 22%.
Consumers actually pay the “corporate” taxes, record keeping, and filing costs embedded in the cost of products and services. Moving collection of these costs to the point of consumption makes American companies 22% more competitive on the international market. Further, $12 to $13 trillion held by American companies in offshore accounts will flood to America with the elimination of the current 35% tax (second highest of the industrialized nations).
One study concluded that American exports would increase by 18%. Another study concluded that exports would increase by $100 billion per year.
While former Fed Chairman, Alan Greenspan, out of respect for the new chairman, will not formally endorse the Fair Tax, however, he concurs with the plan.
Referring to the off shore funds. Allen Greenspan said that these funds would come to the U.S. in months if the corporate tax rate were zero. And he was right!
Congress approved a one-year tax rate reduction to 5.25% for 2005. A government agency estimated that $200 billion would be repatriated and would yield $2.8 billion in revenue. However, the IRS concluded that eight hundred companies brought $362 billion back to America, 1.8 times the estimate, with revenue of $18 billion, 6.4 times the estimate. U.S. business investment rose 9.6% in 2005 – the highest rate in more than a decade.
Wall Street Journal, 1 July 2008, p A16
Just imagine the tremendous long-term growth to the American economy and job creation if companies knew the corporate tax rate would be zero… permanently! ! !
Superior to Alternatives.– The FairTax plan is indeed the ultimate tax reform and economic stimulus without investing a single tax dollar. A 1997 government taxation committee reports that in a study by many economists, of differing persuasions, ALL agreed that the FairTax Plan is superior for long term growth. The FairTax addresses issues that no other plan touches. Neither the Flat Tax nor the Value Added Tax (VAT) addresses: fairness, simplicity, withholding taxation, cost of administration, cost of compliance, and cost of enforcement. Further, both Flat Tax and VAT stifle growth of the economy and place American companies at a tremendous disadvantage on the international market.
In an informal survey of 500 CEOs of international companies, 400 said that they would build their next facility in the United States and 100 said they would move corporate headquarters to the United States, if the tax rate were reduced to zero.
Professional Endorsement — Upon submission of the FairTax legislation 76 professional and university economist wrote an open letter of endorsement to the President, Congress, and Fellow Americans.
Former Treasury Secretary John Snow said to the framers of the FiarTax Plan, “You have just proposed the biggest magnet for capital and jobs in history.”
Economist Milton Friedman, told the 2005 President’s Advisory Panel on Federal Tax Reform, that he helped the Treasury design the withholding tax to fund WWII, but said, “… it has been a mistake in the post war era and we would be better off if we did not have a withholding.”
Ideological Issue — “In America, cutting tax rates is an ideological issue. In the former Soviet satellites of Europe, it is increasingly not an issue at all– so obvious is it that it gives people better lives.”
Ireland – With its 50% corporate tax rate; near 20% unemployment; and the GDP of 1.9%, Ireland’s economy was known as “the poor man of Europe” Since reducing its corporate tax rate, in increments, from 50% to 12.5% in 2003, and passed other laws conducive to attracting industries, the economy has exploded and quickly became known as “the Celtic Tiger.” Four American international companies contribute 90% of Ireland’s exports. In addition, two other companies have major facilities. Microsoft, alone, holds $4.1 billion in cash to avoid the 35% tax if brought to the U.S.
(NOTE: Cap and Trade is a major disincentive, rather than incentive, to attract companies to come from abroad to America.)
Ireland’s low corporate tax rate of 12.5% on trading profits has been a magnet for multinational companies who are responsible for 90% of Irish exports and a significant contributor to the success of the modern Irish economy, commonly known as the Celtic Tiger. www.finfacts.ie/irelandbusinessnews/publish/article_10003995.shtm
Low corporate tax rates and business friendly legislation moves jobs and stimulates economic growth. In a 2009 survey of 220 CEOs, two thirds from international corporations, 88% said the tax regime is the most important factor influencing the decision to continue to operate in Ireland.
Switzerland — One state reduced its tax rate to 6.66%. Two US multinationals, Procter & Gamble and Colgate, relocated their European headquarters to Switzerland and Biogen Idec, transferred from Paris to Switzerland when the corporate tax rate was reduced. www.finfacts.com/irelandbusinessnews/publish/printer_1000article_10004879.shtml
Other Benefits :
FairTax is indeed fair. All industries and services are treated the same, no exclusions or exceptions. All consumers pay the same rate while low income families are protected from a regressive tax. The 23% (included in the price of goods and services) tax rate replaces 11 corporate and individual federal taxes.
Low income families are protected with a progressive tax. No registered (legal resident) family pays tax on income up to the poverty level, regardless of total income. Each registered family receives a “first of the month “pre-bate” of the tax on the poverty level of income for the family. The pre-bate will be less than the $345 billion dollars of uncollected income tax. Untaxed used goods provides another tax break for low income families. Further, analysis shows that charitable giving increases directly with the growth of the economy.
Charitable Contributions — Charitable contributions are directly related to the state of the economy. Thus, as the economy grows, charitable contributions will grow. Churches will no longer have to worry about maintaining tax exempt status.
Social Security and Medicare are fully funded with a fixed percentage of the tax collected. Each worker’s gross income is reported to the Treasury for the purpose of calculating SS benefits.
The FairTax stabilizes the tax code, since the influence of lobbyist will be essentially eliminated. No more special interest, back room deals. Highly visible congressional legislation will be required to change the tax rate.
Low income families are protected as no legal resident pays tax on expenditures up to the poverty level ($10,830 of one adult, $21,660 for two adults, and $3,740 for each child).
Individuals will pay less tax than under the current IRS system because of four primary factors: 1) Individuals will take home more pay;
2) Individuals are taxed on what they spend rather than income… save or invest 10% and reduce tax paid by 2.3% (23% of 10%)
3) Due to the “pre-bate” no legal resident pays tax on expenditures up to the poverty level…tax rate is negative up to the poverty level, 11.5% at twice the poverty level, and 15.3% and never more than 23% regardless of expenditures)
4) The tax base is doubled. Every consumer pays tax, including those in the underground “cash only” economy and 40 million annual visitors to America.
In addition, tuition for education and training is considered an investment, rather than final consumption; therefore, is not taxed. Further, used goods are not taxed.
Implementation and collection cost will be minimal as states will collect the tax and submit to the treasury. Forty-five states already collect sales tax. Businesses and states will receive one quarter of one percent as a service fee.
Enforcement cost will be lower than under the current power system is the IRS will be abolished; no individual tax returns to audit; and the number of states and businesses to be audited will be greatly reduced.
Neutral Revenue — The 23% tax rate is calculated to initially provide the same income as the current tax system. However, as the economy grows tax revenue will increase.
If reform is necessary, what are the criteria for tax reform–
In December 2004 the House leadership wrote a letter to the President with these recommendations on tax reform:
– It is urgent… we must reform the tax code now
– It must be progressive… No increase on mid-income families
– Avoid the unintended consequences of the AMT
– Must be simple… Far less complex then the IRS code
– Must be revenue neutral… bring in the same revenue as currently collected
A Congressional tax committee report states that–
Tax reform is necessary, and… to be successful legislators must …
– Minimize administrative costs
– Apply low marginal tax rates to…
– A broad economic base.
– Meeting these objectives should reduce disincentives to work, save, and invest.
Of the currently proposed tax systems, the Fair Tax is the only one that meets all eight
Opportunity Squandered — The FairTax Plan, has been pending congressional approval since 1999. The evidence is overwhelmingly clear that tax cuts are a better economic stimulus than “bailouts.” which put an unbearable tax burden on future generations. The FairTax is the ultimate tax reform and economic stimulus and job crreator which requires no expenditure of tax dollars, while reducing the tax burden on individuals. The Fair Tax Plan has strong endorsements from highly qualified individuals. The FairTax legislation should have been passed 10 years ago.
Time for Non-partisan Action — Particularly, given the more recent undeniable history of economies flourishing following tax cuts, it is inconceivable that the opportunity for historic American economic growth has been ignored by presidents and congress. Given the current need to do everything possible to stimulate the economy; it is now time for all legislators to do “what is best for America” and immediately pass the FairTax legislation, H.R. 25.