**The President\'s Advisory Panel on Federal Tax Reform**

Request for Comments #3 (May 17, 2005 - June 10, 2005)

submitted on June 4, 2005

by

John A. Kozan

Individual

4933 W. Charleston Street

Glendale, Arizona 85308

602-439-1136 / koz4933@qwest.net

The President\'s Advisory Panel on Federal Tax Reform John A. Kozan

**Request for Comments #3 ( May 17, 2005 -- June 10, 2005 ) Page 1**

Thank you for again giving me the opportunity to help you with your task
of studying options for reforming America's tax system. Having submitted
my comments in response to your second request, I am glad to have the
opportunity to expound on the benefits and problems of the plan I
brought to your attention with that response. That plan is the FairTax
(HR25 & S25). Benefits of this proposal include:

1**. The FairTax is fair.** It contains a rebate for every household,
which would totally rebate the tax consequences of spending up to the
poverty line. This rebate mechanism ensures that every household could
buy necessities untaxed. It totally untaxes the poor. All Americans
receive equal, fair treatment.

**2. The FairTax is simple.** It eliminates 55,000 pages of federal tax
rules and replaces them with a 134 page law.

**3. The FairTax is a voluntary tax system.** Every citizen becomes a
voluntary taxpayer, paying as much as they choose, when they choose, by
how they choose to spend.

**4. The FairTax creates transparency within the tax code.** The FairTax
eliminates the hidden tax component from the price of goods. Knowing how
much we pay in federal taxes on every purchase would make all Americans
more aware of the cost of government

**5. The FairTax is border neutral.** Under a national sales tax,
imported goods and domestically produced goods would receive the same
U.S. tax treatment at the checkout counter. Moreover, our exports would
go abroad unburdened by any tax component in the price system.

**6. The FairTax would solve our Social Security problem.** All of the
arguments about private accounts saving Social Security miss an
important point -- the number of retirees will increase in the next 30
years by 100 percent and the number of workers supporting them will
increase by 15

The President\'s Advisory Panel on Federal Tax Reform John A. Kozan

Request for Comments #3 ( May 17, 2005 -- June 10, 2005 ) Page 2

percent. That system will only survive by dramatically reducing
benefits, increasing taxes or increasing the number paying into the
system. Under the FairTax, Social Security benefits will be paid out of
the general sales tax revenues. The sales tax will be collected from 300
million Americans and 40 million visitors to this country. Revenues to
Social Security and Medicare will double, as we expect the size of the
economy to double, in 15 years.

**7. The FairTax has manageable transition costs.** The only transition
rule will be to allow retailers to use inventory on hand on December 31
as a credit against collecting taxes on sales in the New Year. This is
based on the principle that things should be taxed only once and goods
produced before the transition would already have the current tax
embedded in them. U.S. businesses have about \$1.4 trillion in inventory
on hand at any given time. Not collecting taxes on that inventory would
cost the Treasury about \$350 billion. Compare that to any estimates of
transition costs just trying to bring some private investment in to
Social Security alone.

**8. The FairTax would efficiently tax the underground economy.** This
alone would increase revenues by over \$200 billion.

**9. Beyond the above arguments, what will the new paradigm do in our
present economy?** Passing the FairTax does several things that will
directly affect the economy.

-   The monies saved on compliance costs will immediately be put to
    efficient and profitable use. We will create millions of new jobs.

-   Our GDP will grow by \$180 billion per year because we would no
    longer make "tax decisions".

-   Eliminating the income tax will bring long-term interest rates down
    to municipal bond rates, ultimately reducing interest rates by 30
    percent. That is good for corporate profits and the market.

The President\'s Advisory Panel on Federal Tax Reform John A. Kozan

Request for Comments #3 ( May 17, 2005 -- June 10, 2005 ) Page 3

-   If all the world's investors could invest in our markets with no tax
    consequences, values would rise. With no tax on capital or labor,
    foreign domiciled international firms would build their next plant
    in America. We would be the world's "tax haven" and the \$6 trillion
    offshore would come home, increasing values in our markets and
    creating jobs.

-   Having no complicated depreciation schedules, AMT, credits and
    deductions to confuse investors, and no tax or compliance costs
    would force a whole new look at corporate accounting. Only three
    numbers would have meaning: earnings, expenses and dividends.
    Nothing to hide behind. It will be easier for shareholders to
    evaluate and monitor the companies they own.

-   Deficits spook the market. Instead of a 20 percent decline in
    collections over the last three years, we would have had increased
    revenues in 11 of the last 12 quarters.

-   Add to the above a 26% increase in exports in the first year, as
    well as a 78% increase in capital investment. Capital investment
    increases lead to increases in productivity and then increases in
    real wages. We also will have a 10.5% increase in economic growth in
    the first year.

**How does the FairTax compare to other fundamental tax reform ideas?**
The FairTax is decidedly simpler and fairer than flat tax proposals. The
U.S. instituted a flat tax in 1913. Since then, it has been amended over
and over, resulting in the very plan we are working to correct today. In
1986, we eliminated most deductions and drastically lowered tax rates to
only two levels. We have amended the code over 6,000 times since then.
We have walked the flat tax path before, to no avail, and it simply
[does not make sense to implement the same mistake again]{.underline}.

The President\'s Advisory Panel on Federal Tax Reform John A. Kozan

Request for Comments #3 ( May 17, 2005 -- June 10, 2005 ) Page 4

Also, by keeping the payroll tax and corporate tax in place, the flat
tax proposals fail to remove the tax component from the price system.
Other sales tax proposals leave in place the payroll tax

-- the largest hidden tax component in the prices of our goods and
services. The FairTax would completely eliminate these hidden taxes,
allowing competition to bring prices down an average of 20-30 percent
and increasing the transparency of the tax system.

It is a certainty that whatever the outcome of the Tax Reform Panel, not
everyone will be satisfied. It is also certain that making changes to
the current tax code would be a temporary fix(?) at best -- witness the
last 20 years of fixing(?) the tax code! I am confident that President
Bush and the Tax Reform Panel will act in America's best interest and I
am also confident that the FairTax will best serve America's interests.

Thank you for your efforts on behalf of the American people.