Response to Request for Comments \# 2 by the Federal Tax Reform Panel.

Individual Submission

Terri J. Welch

1510 Walton Road

Christiansburg, VA 24073

540-731-8207

terrijune@marykay.com

April 26, 2005

Dear Chairman Mack and Tax Reform Panel members,

**Part I Description of Proposal**

I.1 the tax base (income, consumption, hybrid)

The FairTax (HR 25 / S 25)

A consumption tax.

A National Retail Sales Tax on all new goods and services purchased by
the end consumer.

I.2 exemptions, deductions, credits and exclusions

There should be no exclusions, deductions or credits from the FairTax
for anything purchased as new.

The only exemption from a consumption tax should apply only to anything
purchased as used or as previously-owned.

No exclusions. No deductions. No credits. Anything sold as new should be
subject to a sales tax.

The FairTax considers education tuition as an investment expense -- it
is an investment in human capital and is exempt. Tuition at all
education levels is exempt (primary, secondary, and college) as well as
job related training fees.

A credit based on family size only is provided (in the form of a monthly
rebate) for taxes on spending up to the poverty level (as defined by the
Dept. of Health and Human Services). Poor people and all other Americans
receive a pre-payment recompense for the sales tax they would pay for
basic necessities.

I.3 tax rate(s)

The FairTax percentage specified in HR25 / S25 for the NRST should be
enough to maintain the same flow of funds to the government. Government
should be funded as-is. No more. No less.

The amount of tax money collected should remain the same. The manner of
collecting those taxes should be changed to a sales tax. The sales tax
rate should be exactly enough to replace the funds currently collected
and pay for the rebate on poverty level consumption.

I.4 distribution of the tax burden (including provisions for relief for
low-income individuals)

The tax burden should be spread among the estimated 290 million
Americans. It should also be spread among any and all in America that
are not citizens; including visitors, tourists and undocumented aliens.

The 290 million Americans (per the last census) should all be given
equal opportunity to share in supporting our government. All the ones
that come to our country, legally or otherwise, should be provided the
same equal opportunity.

All of us in America enjoy the many benefits of America. We are all
equally obliged to pay for what we enjoy. A sales tax will let us all
honor that obligation -- equally.

Lower-income Americans should be free of a tax burden. All their
spending up to the government-established poverty level is free of
taxes. They pay the sales tax on any spending above that amount like
everyone else. They should receive relief by way of re-compensation. In
the spirit of a fair system of taxation -- the compensation should be
given to all qualified Americans.

I.5 treatment of charitable giving

Charitable giving in America will take care of itself after we
transition away from the income tax to a sales tax. Charity or giving is
not consumption and would not be taxed. As a result, all contributions
would be made with pre-tax dollars. There will be no need to make
special provision for charity. Americans are charitable by nature. The
more money we have -- the more we give. This fact has been borne out by
scholarly studies many times over.

The IRS provides a break for people that give to charity. Surprisingly,
only about 30 percent of taxpayers actually take advantage of that
break. Another surprise is that in 1986, when top tax rates were cut
from 50 to 28 percent, charitable giving went UP the next year by 7.6
percent.

Americans gave \$6.4 Billion MORE (\$600,400,000,000) to charity after
our taxes were cut.

Americans will have more money to give when the income tax is replaced
by a sales tax. We will give more when we have more to give. Government
is neither required nor welcomed into this process.

Under the FairTax, everyone (not just those who itemize) can give to any
charities on a pre-tax basis with no limits or restrictions established
by the federal government.  The FairTax is MORE gift friendly than the
current system, not less.

I.6 treatment of home ownership

Home ownership will be much more affordable under the FairTax. Used
homes will sell with no tax consequence. New home prices will be reduced
when the 20 -- 25 percent embedded tax cost is eliminated. Many more
Americans will be able to afford a home.

The FairTax plan is an integrated proposal with many positive features,
not the least of which are the advantages that will accrue to
residential real estate ownership.

Americans will pay their entire house payment, both principal and
interest, with "pre-tax" dollars.

We will all get this benefit without itemizing deductions, which only a
small percentage of homeowners do today.

We will all be able to save for down payments much faster, without the
penalty of taxation.

The FairTax will reduce interest to rates even lower than they are
today.

The deduction for home-mortgage interest will become a moot point since
there will be no form 1040 or Schedule A. Under the FairTax, we will be
able to buy and pay for our homes with tax-free dollars. We won\'t have
to pay our mortgage and hope that we\'ll get a nominal tax break for the
interest we have paid. In addition, most middle-class Americans do not
really benefit from the current home mortgage deduction since the
standard deduction is higher than the itemized deductions they can
claim. Having more spendable income in each paycheck allows hardworking
Americans to invest their money in homeownership and makes it more
likely that they will be able to afford the home of their dreams.

I.7 collection method(s)

A National Retail Sales Tax will fit into point-of-sale tax systems
already in place in almost every business in almost every state. With
slight modification, they will serve to collect the NRST. Any cost to
modify those systems pales to insignificance when compared to the
billions spent annually to comply with the current income tax system.
The cost to upgrade them would be a one-time expense by business and
tax-free as well.

States would be compensated for their efforts to collect, report and
submit federal funds -- ¼ of one percent of total collections. That
expense will be miniscule in comparison to current income tax reporting
requirements.

I.8 treatment of businesses

Under the FairTax, businesses would pay nothing in taxes. Any
business-to-business transaction would be free of any tax consequence.
Businesses would be free to do business, create product, make money and
create jobs. They would be unleashed to serve as dynamos for the
American economy and job creation.

With the FairTax, businesses would be relieved of their current onerous
reporting responsibility. This would free the hundreds of billions of
dollars they now spend on tax record keeping and reporting to be spent
growing their business and creating more jobs.

The FairTax does give business the responsibility to collect sales tax
from retail customers and send that tax money to the government on a
monthly basis. That would be the beginning and end of their
responsibility. They would otherwise be left alone to create product,
make sales, grow their business and create more jobs for Americans.

The FairTax is industry neutral. No industry would get any break. Under
the FairTax, no business or industry would need it. No business would
pay any taxes. American businesses would be free to invest in their
businesses, increase the GDP and create more jobs.

**Part II** Impact of Proposal Relative to Current System

II.1 simplicity (including transparency and stability)

The FairTax would be the most simple of tax solutions. Everybody would
pay exactly the same percentage sales tax on the purchase of new goods
and services.

The FairTax would be completely transparent to all that use it. All
would see the percentage tax they paid as sales tax on every receipt,
every time. No sneakiness there. No way to hide any sneakiness either.

The FairTax would make the tax code understandable. Citizens would be
able to understand how much they are paying in taxes every time they get
a receipt for their purchase. The sales tax amount listed on the receipt
would replace the 60,000 pages of inscrutable IRS code we now endure. No
American would ever have to wonder if they have complied with the IRS
tax code, worry if they are going to be audited, try to avoid taxation
by "fudging" on their tax return, or spend hours upon hours preparing a
return. April 15 would become just another day.

The FairTax relies upon the historically proven stability of a
consumption tax. A consumption tax has been statistically and
historically proven to be more stable and reliable than an income tax.

The current tax code has been grossly manipulated to reward elite
interests and compliance has become increasingly difficult and
expensive. The federal income tax is extremely unfair to wage earning
Americans, and is anything but simple. The FairTax is not only simple
for all Americans to understand, but is also completely FAIR for
everyone in America.

II.2 fairness

The FairTax would enable all Americans to participate in funding
government. We would all be given the opportunity to participate.
Nothing could be more fair. The poor would pay nothing in taxes up to
the poverty level. Nobody else would pay taxes up to the poverty level
either. Nothing could possibly be more fair.

The FairTax would eliminate all possibility of anyone taking unfair
advantage to avoid paying their fair share of taxes. The rich, the poor,
tax dodgers, those in the underground economy and undocumented aliens
would all participate equally. In addition, millions of tourists each
year would also participate and help support our government.

Anyone buying goods or services would pay the tax. They would pay their
fair share no matter what. The rich wouldn\'t be able to find their way
around it, the underground economy wouldn\'t be able to escape it,
illegal aliens and other visitors who enjoy the services provided by the
United States would be required to contribute as well.

Under our current system, the poor pay more in taxes, as a percentage of
income, than anyone else in America. They don\'t pay it in income taxes,
but instead, they pay it in hidden taxes.

The retail cost of food includes an estimated 20 to 25 percent in
embedded taxes. The taxes are accumulated at every step, from the
farmer\'s field to the processor to the distributor to the shipping
company and to the grocery store. Those taxes are added to the price of
the product. The same scenario applies to all manufactured goods as
well. Every time the poor, or any of us for that matter, purchases a
product, necessary or not, we pay those hidden taxes. Under our current
system, businesses do not pay any taxes, they just add the cost of tax
to the price of the product, collect the tax from the consumer, and
remit the money to the government. With the FairTax in place, those same
businesses would remit collected sales taxes to the government, but
without all the hidden taxes currently in place. What could be more FAIR
to all of us?

II.3 economic growth and competitiveness

The FairTax would eliminate the bias that the current system provides in
favor of foreign producers; would put US producers (esp. agriculture and
manufacturers) on a level playing field with the rest of the world.  By
raising 95% of the federal government's revenues with a totally border
adjustable mechanism, the USA would go from one of the worst tax systems
in the world with respect to international trade to one of the best.

As Americans, we should be concerned about the competitive edge that our
tax system gives foreign manufacturers. We should no longer allow the
income tax to make foreign-produced goods more competitive than our own.

Replacing the income tax with the FairTax will end this practice and
make American products 20% to 30% more competitive, both at home and
abroad. What a break for U.S. producers and consumers as well! Getting
rid of the income tax will dramatically lower production costs in this
country. And competition will ensure that these cost savings will flow
not only to the pockets of American manufacturers who will be able to
create more and better-paying jobs, but also to the pockets of American
consumers who will be able to buy more, save more, and invest more.

The FairTax is automatically border adjustable. No sales tax is levied
on goods or services exported to other countries. Therefore, American
produced goods and services would have no tax costs embedded in them
making them competitive in the global marketplace.

The replacement of the income tax system with a national sales tax would
attract the return of trillions of dollars to our economy currently kept
offshore. Tax consequences now keep that money in foreign banks and
investments. The FairTax would eliminate those consequences and allow
for that money to come back and be added to the American economy. The
new money would enable increased investment, resulting in productivity
improvement and job creation.

The FairTax would mean a huge influx of money into the American economy.
Trillions of dollars that belong to Americans are currently invested
offshore because of taxes. The FairTax would eliminate any reason for
those dollars to stay offshore. The American economy would boom with new
jobs for Americans when those dollars come home. With more jobs, more
Americans would be working, reducing the burden on the Department of
Social Services, more Americans would have money to spend and invest,
helping our economy to grow even more!

II.4 compliance and administration costs

The FairTax would reduce compliance costs by 95%, according to the Tax
Foundation. That money would be freed up to be spent by businesses, as
they see fit, to make their business more successful.

The FairTax would eliminate untold hours of work and effort by elected
officials, and their staffs, to deal with tax code considerations. Their
time would be freed up to consider other things of greater importance to
the voters that elected them.

The hours, the work, the concern and the money spent by individual
taxpayers would be freed up to more productive endeavors under the
FairTax. The same would apply to all American businesses. Without hidden
compliance costs in every American made product, those products would
become more competitive here and abroad.

**Part III** Transition, Tradeoffs and Special Issues

III.1 Transition

The transition to FairTax will be greatly simplified by systems already
in place that collect state and local sales taxes. Those systems can be
easily modified to include a national sales tax. The fact that the
FairTax is collected only once at the consumer level, actually makes it
an easier system to comply with. Currently all businesses must collect
taxes and remit them to the government, but with the FairTax, only
direct to consumer retailers will have to collect taxes.

III.2 Tradeoffs

The FairTax would require no \"tradeoffs\". The FairTax is very specific
in that no special consideration would be given to any people, any
industry or any business. Under our current system, there are too many
"special considerations" that truly make our tax system unfair to
millions of Americans. The FairTax is the only tax system that is
completely FAIR to all Americans.

III.3 Special Issues

The FairTax will require that checks be sent to qualified households on
a monthly basis. The check would represent the tax \"pre-bate\" to cover
tax on purchases up to the poverty level. This would be done by the
Social Security Administration which has a good track record of accuracy
in benefit payments.

Businesses that have inventory in stock on the close of business the day
before the FairTax goes into effect, will qualify for a transitional
FairTax credit if the sale of the inventory is taxed under the FairTax
and is sold within two years.

The transitional inventory credit is equal to the cost of the qualified
inventory times the FairTax rate. The credit may be claimed on the
monthly sales tax report when the inventory is sold subject to the
FairTax.

Businesses may sell the right to receive the credit, so the credit can
follow the qualified inventory through the production process. Qualified
inventory includes work-in-process.

**Part IV** Conclusion

Thank you for your consideration of the FairTax. It is the only tax
reform measure that is completely FAIR to all Americans and the only
system that will allow our economy to grow. I urge you to consider the
FairTax when making your recommendations to President Bush. The FairTax
will keep America strong, make us globally competitive, increase
investment, and create more American jobs!

Sincerely,

Terri J. Welch