Posted by earthsheltergal on 07/24/10

Setting the Record Straight: Misconceptions about the FAIR TAX

None, I repeat, none of the above notions are true. These are only wisps of facts which all bear closer scrutiny. If you visit the Fair Tax website, there is a link to the actual seventy-plus page bill. I highly recommend that you read it. They also have Fundamentals, a Thumbnail Sketch, FAQ and other documents where they present their explanations. These documents need to be reconciled and verified with the actual bill. The following is our search for the truth.

At a Weeki Wachee Swampfest a few years back, in Hernando County, Florida, a personable group of folks had a booth emblazoned with FAIR TAX. Thinking this sounded like a great idea, my husband and I ambled over, read brochures, and waited our turn to ask some questions. Sounded good. What's not to like? We get rid of the IRS and income tax. We get a 23% sales tax instead. Business will flourish, because they will be exempt from embedded taxes (20%), which they would naturally pass along to the consumer.

Sounds too good to be true? Well it is. I heard what I wanted to hear. We are all so desperate to lower our tax burden and get some control of the rampant spending, that we deceive ourselves. Machiavelli noted that

"Men are so simple, and so subject to present necessities that he who seeks to deceive will always find someone, who will allow himself to be deceived."

No responsible citizen should back a piece of legislation without reading it and getting all the facts straight. Haven't we criticized our Congressmen for that very thing? Most folks who support the bill have not read it. And that doesn't mean just the book! You may find discrepancies with the way the actual bill is portrayed in other literature. Now's the time. Read it! In talking to people who have read the Fair Tax book, here are some of their common misconceptions.

Misconception #1 That the Fair Tax will be a 23% sales tax at the register

The actual Fair Tax at the register will be 30% of the item price. That's right, 30%. If the item is taxable under state sales tax, then you will pay about 37% at the register. They tell you so on their own Fair Tax website, but we don't always listen. Page one and two of the Fair Tax Thumbnail Sketch, state that the sales tax is charged just like state sales tax. "The amount you pay to fund the government is totally visible." It will be on your register receipt. On page two, under revenue neutrality, they tell you that the Fair Tax will be-

"about 30 percent at the cash register when they elect to buy new goods or services for their own personal consumption."

The actual Fair Tax is 30%. They add this to the cost of the item first, to create the gross amount. The Fair Tax is 23% of the gross. Confusing? I should say so. More simplistically, under the Fair Tax, if you go to a dollar store to buy a $1.00 bag of chips, and dig 23 cents out of your pocket, you'll be 7 cents short. The actual tax at the register will be 30 %, so you'll need $1.30. (Note that all food which formerly was not taxed will now be taxed.) If you purchase a $100 prescription, you will owe the pharmacy $130. If you purchase a $25,000 new car, the Fair Tax paid to the sales department will be $7,500. The state sales tax will be about $1,750 for a total of $34,250. Just to confuse the issue further, what if the state gets the bright idea to tax on the gross or simply increase the sales tax, because their revenue may be down thanks to the supposed falling prices? Then it could cost $34,775.

In the fairtax.org "Fundamentals" example, the tax on a new $230,000 house will be $69,000. I'm no mathematician, but $69,000 is 30% of $230,000. If you add the tax to the price, you get $299,000, and the tax is 23% of that total, tax inclusive. The fact remains that the tax amount is 30% of the price of the house. Lenders that we called were totally unaware of the Fair Tax and would not take a stand as to including it in the mortgage. If they won't, this and any tax on a large ticket item, like a car , will have to be paid up front, out of pocket, And even though you'll have more pretax dollars on hand, that amount varies significantly with your income. If you're wealthy enough to have the cash on hand, fine, but if not, you may have to save up a lot of monthly "prebates", but that's another misconception for later.

We have spent so much time on these examples, because even people who have read The Fair Tax book cling stubbornly to this misconception. At a recent conservative political meeting, teeming with knowledgeable people, we could not find a single one who was aware that the Fair Tax was actually 30% of the retail price at the register and not 23%. Many of these people had even read the book!

(b) Rate

(1) For 2011, 23% of gross payments for the taxable property or service...

(2) For years after 2011, the rate will be the combined tax rate percentages as defined in paragraph 3 of gross payments for the taxable property or service.

That rate is the combination of General Revenue, Old -age, Survivors and Disability and Hospital Insurance Rates (all set by the federal government) which is currently 30.2% as listed in Misconception #2. If they follow the same formula, does this mean that in the second year, we start at 43% at the register? As those rates change, so will the total tax.

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Misconception #2 That the Fair Tax will be permanently

capped at 23%

Now it should be more clear, that that 23% is really 30% at the register. But, it only starts at 30%. There is no cap on the Fair Tax, after the first year, so in that regard, it is no better at limiting big government spending than the income and payroll taxes. By their own examples on fairtax.org, they tell you that government funding and the Fair Tax is based on three factors:

1. The General Revenue Rate (currently 14.91%)

When in the past century have you ever heard of the Federal government getting smaller, especially now in the current financial crisis in which we are embroiled? In essence, we would be giving the Federal government, who determines those three factors, carte blanche to write their own tax ticket, with our approval. Granted, they control those factors now anyway, but the point being, that we're still not getting at the vital issue of slowing and reducing the out-of-control spending in Washington. Repeat, there is no cap on the Fair Tax. The Federal government, through the now bankrupt Social Security Administration and the Congress, will still determine what We the People pay, and pay and pay. The whole idea should be to stop spending, not fuel it. There's a roaring inferno of spending going on in Washington right now and all we would be doing is providing a broader base of taxes to throw more fuel on the fire.

Another anomaly, is the revenue allocation of the tax haul in the first year. Notice the three government funding factors above. General Revenue is about half of the tax rate. However,

in Chapter 9, Section 904, c , Revenue Allocation for 2011 is:

(1) 64.83% to General Revenue

(2) 27.43% to Old-age, Survivors, Disability Insurance Trust

(3) 7.74% to Hospital Insurance and Federal Supplementary Insurance

What's wrong with this picture? Prior to this time, general revenue was only half of the total. Now it's two-thirds. How did this change occur? Is it because the tax base is so broad with most all goods and services being taxed, that we can afford to throw more fuel on the spending spree in Washington, or is it something else? Is there some other source of funding in the works for Social Security? The following is a question under the Frequently Asked Questions: "How does the Fair Tax affect Social Security reform?" An example states that "if a mandatory private savings program is implemented where people must save ten percent of their income and Social Security benefits are curtailed..." If this occurs, is this why you'll still need the 16^th amendment to coexist with the Fair Tax ? Then more money could be placed in the general revenue, because We the People could once again be funding Social Security through new income taxes and in addition, paying a large national sales tax. Much of this paragraph is conjecture, but it shows how little we really understand about where this could lead.

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Misconception #3 That "Revenue Neutral" is an acceptable tax

If we're going to fight, let's fight for something really worth winning. Do you think Samuel Adams would have settled for a replacement tax? Now Mr. Adams, you don't like that nasty old Board of Customs Commission and the Writs of Assistance they use to collect taxes. So we'll trade that in for a revenue neutral tax on food, clothing, building materials, your horse, hay for your horse, your new house, and any other goods you can name, all your services like the blacksmith, the cobbler, your housekeeper, just to name a few. We'll send a single prebate to your domicile monthly, by pony express. If you don't fill out your "Qualified Family" form correctly, or forward your share of sales taxes collected from the family brewery, we'll send out the Problem Resolution Officer armed with warrantless Taxpayer Assistance Orders to enforce it. You may be audited and do jail time. Oh, and by the way, we'll still continue to tax you at whatever rate the British government needs, in case it gets bigger. What do you think he would say? It was the principle of the thing and it was the taxes. We need to think out of the box. We need to dare to dream like our Founding Fathers. Let's get it right!

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Misconception #4 That businesses, services and corporations, will automatically pass along savings to We the People and that they are supportive of the Fair Tax

Embedded taxes. Mysterious, magical, embedded taxes. Do you know what they are, how much they are or how much they would affect sales prices? No one does. Since businesses pay no income taxes or compliance costs under the Fair Tax, the theory goes that retail prices will be approximately 20% lower because of business and corporate savings ( according to Dr. Dale Jorgenson of Harvard University, Fair Tax Thumbnail Sketch, page 1, who, by the way, does not support the Fair Tax). We don't know when you last had to deal with a "bean counter", but their job is to squeeze every penny from an existing business and express it to corporate headquarters. A few years ago, CEO salaries were on average forty times that of a worker. Now their salaries are up to five hundred times or more than that of an average worker. They're constantly looking for new sources of revenue to fuel their bonuses too. Have corporations and businesses, banks and insurance companies, suddenly become magnanimous and caring? All you're assured of under the Fair tax is how much you'll have to pay, but you have no guarantee at all that prices will come down. All we would have are nebulous promises from some of the same folks who got us into this financial fiasco in the first place.

Remember, there are no guarantees of this much touted savings. Business takes little risk under the Fair Tax, but the same cannot be said for We the People. To truly protect the consumer, a new section needs to be added to the Fair Tax bill. Let's call it section 1001. The subject would be a guarantee of lowered prices to the consumer by removal of the embedded taxes from the price of goods and services. All businesses and corporations would be required to file a plan to show these reductions to become a "Qualified Company". If they do not comply, there would be appropriate penalties by law. Just add it to the Fair Tax Bill Section 504, which contains a host of other penalties, fines and jail time. Section 602(a),states that the Sales Tax Administering Authority may levy and seize property, garnish wages or salary and file liens to collect taxes. You just thought the IRS was gone. It may have just changed its name to STAA, the Sales Tax Administering Authority. Section 501(d) encourages you to inform on businesses, family and neighbors. Section 501(h) offers you a cash reward for doing so. So if you have domestic help, such as a nanny, a caregiver, or a maid in your household, you become a qualified employer. If you fail to file a monthly report with a 30% payment (out of your pocket, not the worker's) your neighbor or relative may turn you in for the reward. Who knows with these economic hard times, I expect some intrepid entrepreneurs will make a business of it. Section 507(a) gives summons power to STAA, and (b) gives examination and audit power to examine business books, papers, records or other data. How many of these powers are Constitutional?

In an e-mail from Mark Gupton, Florida Fair Tax Managing Director, he states that:

"...big business has not become interested enough to help advance the plan. When both the national Chamber of Commerce and The National Retail Federation oppose FT, it becomes a difficult hurdle. By the way, even Dr. Jorgenson is not a proponent of FT. He has his own idea, but, as usual, he does not have legislation nor a grassroots organization nor any educational program to promote his plan...."

So are We the People, such as the Tea Party movement, and other political groups, being used as the mechanism to recharge this stalled bill? If so, we demand to have the truth, the whole truth. If business isn't cooperating, what makes anyone think they'll cooperate after it's passage? We have no assurance that competition would keep prices lower after embedded taxes are removed, or that business won't find other uses for their new-found windfall.

Maybe big business isn't interested because of the additional bureaucracy involved. Large businesses and services would have the extra burden of maintaining a mandatory separate bank account and must post a sizeable bond ($100,000), to ensure payment to the government. They must also send in separate reports and payments weekly. Small businesses and qualified employers must make monthly reports and payments. If you barter, you must turn in fair market value. States must send the taxes to the federal government every five days or face stiff penalties. Big Brother is still watching you.

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Misconception #5 That the Fair Tax Bill abolishes the IRS and repeals the 16^th amendment

Most people think the Fair Tax Bill abolishes the IRS and repeals the 16^th amendment. Their website introduction actually says "Makes taxation of income unconstitutional by repealing the 16^th amendment". In reality, only a constitutional amendment can repeal the 16^th, and that effort would be launched concurrently but separately from the Fair Tax Bill. One is not dependent on the other. The government will get seven years to try to repeal the 16^th, at which time if they are not successful, the Fair Tax will sunset. On the FAQ section at fairtax.org, it clearly states:

"Is there any provision in the Fair Tax bill to prevent both an income tax and a sales tax?" "The short answer is that there is no provision in the Fair Tax bill (HR25) that would prevent having a national sales tax and an income tax." 

Is there a precedent in our history for this? Absolutely! Have you ever wondered how in the world the 16^th amendment ever passed in the first place? In 1913, a big public relations campaign worked to convince the American people that tariffs (import taxes) were benefiting big business and hurting the consumer at the register because they had to pay more for imported goods. A tax on incomes, they argued, would force the rich to pay their fair share. From Ron Paul's Revolution a Manifesto, "And that's just how the income tax was pitched to the people: tax relief for you, in the form of lower tariffs, and a tax increase for the rich." People were told not to worry because it's only a 1% tax and only the richest of the rich will ever pay it. You know the rest of that government tale. But you would think the Federal government would have kept its promise not to reinstate import taxes. By the 1920's they were raised again anyway, so the people got the worst of both worlds. We need to learn from history or we're doomed to repeat it.

When you hear candidates questioning The Fair Tax, don't be so hasty to criticize. Maybe they have reason to be cautious. Maybe they've studied their history and know that we've been fooled before. Maybe they've actually scrutinized the Fair Tax bill for themselves.

Remember, there is nothing in the Fair tax Bill itself forcing the repeal of the 16^th amendment. And our government has proven time and time again, that they have a way of legislating around it. Many folks would be far more comfortable having the 16^th abolished first, or at least concurrently with the initial date of the Fair Tax.

Parts of the IRS code will still be in existence too. After all, the Fair Tax makes reference to many parts of it. It will only repeal certain portions of the tax code. The IRS would still be around for a few years to collect back taxes and tidy up business, then we'll have only STAA, the Sales Tax Administering Authority to administer the remaining portions of the IRS code.

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Misconception # 6 Under the Fair Tax, we will have fewer taxes, less paperwork and no IRS-style persecution

Under the Fair Tax, it will be difficult to find anything except businesses, non-profit organizations, investments, and estates that won't be taxed. You'll pay 30% additional at the counter on food, clothing, prescriptions, car repairs, home insurance, health insurance, college tuition, safety deposit boxes, brokerage fees, lawyer services, doctors fees, dental bills, barber services, lawn services, domestic services (which you have to file and pay the 30% yourself), airline tickets, bus tickets, cruises, lottery tickets and gaming, federal and state government purchases, gasoline, boarding stables, feed stores, charter boat tours, attraction tickets, telephone bills, electric bills, internet services, ............. And just about any other good or service you can imagine. We would encourage each "Qualified Family" to investigate their own circumstances and expenditures against current income tax payments to get a clearer picture.

Many folks with businesses small and large, will become first-time tax collectors. That always involves bureaucracy. We may just be trading one type of paperwork for another type of paperwork. Also, every "Qualified Family" who would like to receive this prebate, must fill out the paperwork. There are seven items, including names, social security numbers, the name of the person or persons in the household to whom the prebate should be paid, certification of lawful residence, that no members are incarcerated, and certification that all family members are listed, with an address. There are no details as to what will be required for certification. We suppose STAA will decide later. All qualified family members over 21 must sign this filing. What happens to our legal voting age, armed services children between 18 to 21years of age? Have they lost their rights under this filing?

A Qualified Family in Chapter 3, Section 301(a) is defined : "For purposes of this chapter the term Qualified Family shall mean 1 or more family members sharing a common residence. All family members sharing a common residence shall be considered as part of 1 qualified family."

Section 301(b) further sets family size determination to be (A) an individual (B) the individual's spouse ( c) all lineal ancestors and descendents of said individuals and individual's spouse ( so children, grandparents on both sides are okay) (D) all legally adopted children (E) all children under legal guardianship. That's it! No one else is legal in this Qualified Family, who all must live under one roof. This appears to brand a lot of human beings as unqualified, who would have been eligible for their annual income tax refund (see more at #7 prebate misconception) Also, there will be, according to Section 603, Problem Resolution Offices established with their concurrent bureaucracy of Problem Resolution Officers appointed by the state governor or the President, to go out and enforce all the sections in the bill. They will be armed with "Taxpayer Assistance Orders" to give them power to operate. This seems to be a misnomer, as the orders will assist the Sales Tax Administering Authority more than the taxpayer. They will have authority to investigate complaints, initiate action or cease actions (such as liens, garnishment of wages, fines, audits...) Maybe all the IRS agents who lost their jobs will apply for these positions. They sound similar in duties. The Taxpayer Assistance Orders are eerily similar to the Writs of Assistance issued by the British government during the pre-Revolutionary War period that so enraged the colonists. Before these Writs, British customs agents had to legally acquire a warrant for their searches or seizures. The Writs of Assistance made no such requirement. That's the main reason that the Fourth Amendment was a part of the Bill of Rights; to protect us against unwarranted searches and seizures. These Taxpayer Assistance Orders may violate the Constitution by allowing searches and seizures of American citizens and their property without a warrant issued by an independent court upon a finding of probable cause.

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Misconception #7 That under the Fair Tax, everyone with a valid Social Security card will get their own prebate check

On the website, they'll tell you that each person with a valid Social Security card will get a prebate check. The Fair Tax bill itself does not say this. What it says is that each Qualified Family will get a single check which must be shared by qualified persons in the household. For instance, if mother lives with you, and works, she will add a small fraction to that check, but will not get a check of her own other than what the designated head of household is required to give. As a matter of fact, the bill actually states that it "shall be divided evenly". How is this "Fair", when different family members contribute different wages and may or may not even help with expenses?

What happens to single unmarrieds living together under the same roof? What happens when they've moved in with Mom and Dad? What happens to four single guys or gals who work together but share an apartment for expenses? What happens to same sex relationships? What happens to aged aunts and uncles or cousins? What happens to friends? None of these people are part of the Qualified Family. How do they get a prebate? We don't know. Do you? Does anyone?

By Section 304(d) the Social Security Administration shall provide a monthly sales tax rebate to the duly qualified family. Note that it says a check, not a check for each person. Some comments on the website might lead you to believe that each social security card holder will receive a monthly prebate check. We can't find that language anywhere in the actual bill. All that is promised is the one check that Section 304 says "shall be divided evenly between or among those persons designated." But remember, even if you're working and 18 years old, you don't get to sign the form, so your prebate stays in the discretion of the designated individual. But if you're a married son and daughter-in-law 21 years or older, living with parents (which happens a lot in these stressed economic times), you are supposed to get an equal share of the single rebate, with your parents, whether you're employed, down on your luck or just a bum, as long as you are a qualified family member. Now we suppose this would apply to your blood relative, but what happens to your daughter-in-law (or your son's girlfriend) who lives with you too, receives a paycheck, pays the 30% at the register, but is not a qualified family member. We can't find where this person and many others will get anything at all.

Can't you just see the sparks flying? Did the people who wrote the Fair Tax bill all live in fairy-tale perfect family situations? There are too many gray areas and unprotected rights the way the bill is currently written. Also, it's a monthly prebate. Poor folks who have large bills due in one particular month like insurance payments or car repairs, could find themselves short of cash to pay those extra taxes. Don't count your prebate before it's hatched.

There are far more gray areas than we can address in this simple format, but this rough draft is a start. We will continue to try to get answers and make them fit the definitions and regulations set out in the actual Fair Tax bill. Remember, it is our responsibility to investigate for ourselves and get the answers before making decisions on something this important. This initiative has been around since 1995 and still hasn't gotten very far. We wonder if maybe that's because some people and businesses have been investigating and couldn't reconcile the facts either?

Remember, there are other plans out there that may be far more "Fair" than the Fair Tax. We really like Ron Paul's plan which also reduces spending. We wonder what Dr. Jorgensen's plan is? What plan could you dream of that would be more fair?

Pat and Shirley Miketinac

July 24, 2010

(352) 796-1767

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Posted by Vampire Killer on 02/14/10

A little inflation is good for our economy. At least that's what we are told. But is this really true? And what is Seigniorage?

First let's make sure we share a common understanding of what inflation is.

In Wikipedia: the introduction to inflation states, "In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money - a loss of real value in the internal medium of exchange and unit of account in the economy."

Now let's check a different source and look at the definition of inflation from Webster's New World Dictionary, 1967 edition which states, "Inflation n, 2: an increase in the amount of currency in circulation or a marked expansion of credit resulting in a fall in the value of the currency and a sharp rise in prices." (Note: Expansion of credit creates inflation as the credit is monetized into new currency.)

These definitions are a little different aren't they? So which is it? Is the cause of inflation the rise in the cost of goods or is it the increase in the money supply? Why should we care? If inflation is indeed the rise in the cost of goods, then we can blame those greedy capitalist for our loss of buying power. However, if inflation is the increase in the money supply, then there is no one to blame except those who control the money source, the central bankers at the Federal Reserve.

Let's get to the bottom of this!

If we dig a little deeper even Wikipedia has the answer under "Inflation: Origins", "Inflation originally referred to the debasement of the currency. When gold was used as currency, gold coins could be collected by government, melted down, mixed with other metals such as silver, copper or lead, and reissued at the same nominal value. By diluting the gold with other metals, the government could increase the total number of coins issued without also needing to increase the amount of gold used to make them. When the cost of each coin is lowered in this way; the government profits from an increase in seigniorage. This practice would increase the money supply but at the same time lower the relative value of each coin. As the relative value of the coins decrease, consumers would need more coins to exchange for the same goods and services. These goods and services would experience a price increase as the value of each coin is reduced."

Now I ask you, "What is the difference between debasing and increasing the number of coins in circulation compared to increasing the number of dollars in circulation?" Let's not forget the debasing of the dollar by removing any redemption ability into a commodity like gold or silver. Isn't this the same thing only on an even more devastating scale? The gold quantity of our money has been reduced to zero!

My conclusion is that inflation is the increase in the money supply and that increases in the cost of goods are the result of debasing the value of the currency in circulation (by removing its commodity backing and increasing its quantity) and not the other way around. So, what is seigniorage?

Seigniorage is one of those words rarely used or heard today. It is basically the difference between the cost to produce the money and the nominal or face value represented. If it costs 5 cents to print a non-commodity backed $100 fiat bill (Federal Reserve Note), then the seigniorage would be $99.95. And isn't the seignorage of money created by digital entry nearly 100%? Who benefits from this value difference?

Again, we need to look at history. In this case the history of the word itself. Seigniorage comes from the word Seignior or Sovereign. Seignior, according to Webster means a "Feudal Lord". When Kings, Lords and Emperors controlled the money supply, they claimed the right of seigniorage (a covert tax on the people).

Who are these Kings and Lords who control our money? They are the owners of the Federal Reserve Bank and the 12 feudal serfdoms known as the Federal Reserve Regional Banks. They and their owners, with the cooperation and complicity of the federal government, claim the right of seigniorage of Feudal Lords. And we thought we were free from serving royalty!

It should be noted that there are occasions when prices increase for other reasons than currency inflation. When demand for a product exceeds its supply, the product's relative value goes up. However, while it may take more dollars to buy this product, the increase is isolated to only the products affected by these shortages. These higher prices help attract more resources (capital, labor, and materials) to increase production to end these product shortages. Currency inflation on the other hand affect all products across the board. In this same supply and demand scenario, it is the money itself that is in over-supply and worth less. Or should I say worthless?

You may have heard it claimed that a 1% or 2% annual inflation rate is good for the economy. At just a 2% annual increase in the money supply, the money you earn and save today would lose more than half of its buying power over the average working lifetime. Add in all the taxes we pay and who are we actually working for? Welcome to the serfdom!

The history of the buying power of our money since being controlled by the Federal Reserve is witness to the destruction of our individual wealth. It is common knowledge, admitted even by the Federal Reserve, that our money today has the buying power of about 5% of its original value of 1913. But where does this buying power go? To our Lords and Masters at the Federal Reserve as seigniorage, the Right of Kings.

Harry Harmon

 
Posted by JohnBaeza on 12/22/09
Last updated 12/22/09

http://www.mikechurch.com/mikes_audio/On-Air%20Interview/Kevin_Gutzman_21122009.mp3