Honorable Members of the Tax Reform Panel,

My name is KIRK ELLIS and these are my personal comments as an
INDIVIDUAL on one of the major proposals presented at the meeting on May
11^th^, 2005.

Kirk Ellis

21255 Cottonwood Ln

Walnut CA 91789

Summary:

I was very impressed with the comprehensive nature of the FairTax as a
complete replacement tax revenue system. I watched this presentation on
CSPAN and I have also read most of the material on the AFT website. I am
convinced by their arguments, including the hidden taxes in retail
goods, the inefficiency of those hidden taxes, and free market
(cutthroat) competition's ability to reduce prices when hidden taxes are
removed from the cost structure of American supply chains.\
My main concern and suggestion: The \$11.5 trillion sitting in
tax-deferred accounts represents an unequal benefit for those savings in
comparison to savings held in accounts where the income tax has already
been paid. The deferred income taxes on those accounts should be
collected during a transition period in the interests of fairness and as
a mechanism to reduce the revenue-neutral Sales Tax rate required.

Many people have been putting money away into tax-deferred 401k\'s,
IRA\'s, and pensions. When it was put away, we understood that we had
not escaped the PIT, only deferred payment until a later date. Many
others have saved outside of tax-deferred accounts or even converted
tax-deferred into non-deferred accounts like a Roth.\
\
For example, two people who each had \$200K in a 401k. One chose \-- for
what seemed like sound reasons under the current PIT \-- to convert to a
Roth. The other did not. After the FairTax is implemented, they will
have unequal buying power. Through no fault of his own, the Roth holder
has only \$140K remaining to spend while the 401k holder has \$200K.\
\
While I am not a fan of big government spending, the fact is that we
(the people) have committed to existing spending programs. Those
commitments were made under a system where earnings were to be taxed.
The government, quite reasonably, expects those future PIT payments from
those tax-deferred accounts as a revenue stream.\
\
Those that put money away in tax-deferred accounts understood that they
would have to pay the PIT later \-- hopefully at a lower rate than
current income, but still pay it.\
\
Those tax deferred accounts total more than \$11.5T today. If those
accounts were disbursed over a seven year period and a flat-rate PIT
charged at 15%, the government would have an average revenue stream of
\$300B per year. This would not require an extended period of IRS
involvement. This money is held in accounts by financial institutions,
and those institutions could simply withhold at a single rate of 15% as
money is withdrawn.\
\
This \$300B additional revenue stream would allow the FairTax rate to be
19% rather than 23%.\
\
That rate would be more palatable to those that claim enforcement
problems and evasion rise exponentially as the rate rises. I think a 19%
rate would make passage of the FairTax easier, as well.\
\
If the economy expands as the AFT claims, and as I am convinced it will,
then 19% for the long haul will be enough.\
\
I am not simply a person trying to spitefully grab PIT from those with
money in tax-deferred accounts. I\'ll tell you that 80% of my savings is
in a 401k. So I am advocating taking a personal tax hit for the good of
the country as a whole and the passage of the FairTax.

During the FairTax presentation, I heard questions concerning the
"double taxation" of people who had already paid taxes on income as it
was earned, and that the FairTax would then be taxing it again.

The FairTax view of the current PIT/Payroll Tax system is that the
burden of business taxes and compliance costs fall on the consumer via
higher retail prices.

This means that under the current system, ALL income that is spent at
retail is already being taxed TWICE \-- once by the PIT/Payroll paid by
the individual and again by the individual via hidden taxes in the
retail price of goods and services.

So under the CURRENT SYSTEM the non-deferred-account money has only been
taxed once until it is spent. At that point it is taxed a second time as
it covers the hidden taxes embedded in the retail price.\
\
Under the CURRENT SYSTEM, the deferred-account money has not been taxed
at all yet, but will be taxed TWICE by the time it has been spent \--
once as income when withdrawn, and again when it pays for the hidden
taxes in the goods or services purchased.

Under the FAIRTAX SYSTEM, the non-deferred-account money has been taxed
once under PIT, and it will be taxed a second time at purchase.\
\
Under the FAIRTAX SYSTEM, the deferred-account money has not been taxed
at all yet, and it will be taxed only once when used to purchase goods
and services because there are no longer hidden taxes embedded in the
price.\
\
So the benefit to the deferred-account holder is a windfall compared to
the CURRENT SYSTEM, whereas the non-deferred-account holder is not
penalized compared to the CURRENT SYSTEM, but neither does he receive
the windfall.

I think retaining this "windfall" effect on tax deferred accounts is
going to seem unfair to those people whose savings has already been
taxed once. Especially when they learn that without this "windfall"
given to others, the FairTax rate could have been substantially lower.
It will also seem unfair to those with no savings at all -- it looks
like a benefit for those wealthy enough to have accumulated savings.

Finally, a lower FairTax rate would result in a lower monthly Prebate
amount sent as a government check to every American. This would reduce
the cost of what can only be described as a new entitlement program. I
estimate the savings in the Prebate program's cost to be over \$50
billion. It would also mean less dependence by individuals on receiving
a check from the government each month. I feel that the larger the check
is, the more people will come to rely on it. This runs contrary to my
personal belief in self-reliance.

Thank you for your consideration.

Kirk Ellis

21255 Cottonwood Ln

Walnut, CA 91789