# Presentation: 068112

## The FairTaxHR 25/S 25

**Presentation of Americans For Fair Taxation**
**on the **
**FairTax Comprehensive Tax Reform Proposal**
**to**
**The President's Advisory Panel on Federal Tax Reform**
**May 11, 2005**
**by**
**Tom Wright**
**Executive Director**
**Americans For Fair Taxation**

## FairTax.org strongly advocates enactment of the FairTax Plan.

**Replaces federal income, estate, and payroll taxes **
**Provides a simple, transparent, progressive national retail sales tax system administered through existing state sales tax operations **
**Generates sufficient revenue to replace, dollar for dollar, all federal income, estate and payroll taxes **
**“****Prebates” every family, ensuring *****no***** American pays any federal tax up to (and beyond) the poverty level**

## FairTax.org strongly advocates enactment of the FairTax Plan.

**Taxes all new goods and services once, with no exceptions, at $0.23 out of every dollar spent – a revenue neutral rate**
**Eliminates repeated embedded taxes at research, production, distribution, and retail levels **
**Prohibits federal dual taxation systems by repealing the 16****th**** Amendment**
**Uses a thorough research basis to provide this  ****non-partisan, apolitical replacement**

## Panel criteria

| 1.  Tax base | New goods & services |
| --- | --- |
|      a.  Revenue neutral    | Yes |
| 2.  Exemptions | None |
| 3.  Tax rate | $0.23 out of every dollar |
|       b.  Progressive | Yes, via a prebate |
| 4.  Distribution | Retail spending above poverty level  |
| 5.  Charitable giving | Giving untaxed dollars |

## Panel criteria

| 6.  Home ownership | Purchase with untaxed dollars |
| --- | --- |
| 7.  Education    | Investment, therefore not taxed |
| 8.  Collection | Existing state systems |
| 9.  Fairness | Polling respondents say yes; millions of non-filers captured |
| 10.  Business | Favors savings/growth/investment |
| 11.  Simplicity | Simple/understandable/predictable  |
| 12.  Growth | Significant GDP & job growth; improves balance of trade |
| 13.  Compliance | Better compliance at lower cost |

## The FairTax makes the U.S. a competitive juggernaut.

**No alternative combines all of the following:**
**Eliminates *****all***** federal tax costs from the supply chain of American products or services**
**Taxes imports sold at retail in the same manner it taxes domestic goods sold at retail**
**Brings the most fertile investment tax environment to our shores:  Zero percent**
**Is a magnet for capital and corporate profits currently hesitant or trapped offshore**
**Encourages savings, investment & growth**

## The FairTax is progressive.

**The FairTax is progressive.**

**The FairTax taxes consumption – the best measure of one’s ability to pay.**
**Prebate eliminates all federal taxes up to (and above) the poverty level. **
**The FairTax ends all tax costs in the supply chain.**
**The FairTax *****completely***** untaxes the poor, removing the tax on upward mobility.**
**Gross pay = net pay.**
**Negative tax rates are better than –90 percent.**

## The FairTax is progressive.

**The FairTax is progressive.**

**The working poor enjoy EITC-like benefits, ****but no filing, no preparation costs & no audits.**
**Private sector compliance costs are eliminated.**
**Effective rates are lower on fixed incomes.**
**Effective rates are lower for middle class.**
**Wealthy consumers pay the highest taxes.**
**Accumulated wealth is taxed successfully.**
**No tax on wages.**

## The FairTax benefits home ownership.

**Taxes new homes; used home prices already reflect the taxes paid.**
**Makes the entire house payment with untaxed dollars, not just the interest component.**
**Makes all homeowners eligible; no itemization.**
**Allows faster accumulation of down payments with no tax on savings and investment.**
**Reduces interest rates by about ****250 basis points (tax wedge on interest).**

## The FairTax benefits charitable giving.

**Giving correlates best with the economy and personal income growth. ****The FairTax boosts the economy.**
**Giving has remained at 2% of GDP while top marginal tax rates have fluctuated ****between 70 and 28 percent****.**
**Giving made with untaxed dollars.  ****Today about 1 in 3 givers itemize.**
**No prohibition of political speech by non-profits removes threat to non-profit status.**

## Collection of the FairTax:Impact on retailers

**Collect such taxes now in 46 jurisdictions.**
**Enjoy an overnight termination of income/****payroll related costs; compliance costs drop.**
**Domestic suppliers experience similar reductions.**
**Gives American consumers full paychecks, free from federal withholding, immediately.**
**Strong economic growth and high employment lead to higher investment and higher consumption.**
**Receive 1⁄4 of one percent (25 bps) ****for collection.**

## States benefit from the FairTax.

**Enjoy the huge benefits of higher nationwide economic growth estimated at about 10%.**
**Get a national template addressing the goals of the Streamlined Sales Tax Project.**
**Should they conform to the FairTax base:**
**Significantly reduce current sales tax rates, and more **
**Enjoy higher compliance at lower costs**
**End revenue growth that lags their economies due to taxing only products**
**Access to prebate system**
**Receive 25 bps.**

## AppendixComparison of proposals

**FairTax:****	****	****	****	****	****Chambliss/Linder**
**Flat tax (hybrid VAT):  ****	****Specter/Burgess**
**Consumed income tax:****	****	****English**
**BEST tax:****	****	****	****	****DeMint**
**VAT/BTT****	****	****	****	****No sponsor currently**
**	****	****       **

## AppendixSocial Security

**FairTax.org is not engaged in the Social Security reform debate in any way, but our proposal has *****always***** addressed its funding.**
**Social Security/Medicare are funded via a dedicated income stream from FairTax collections.**
**Ends the regressive, narrow payroll tax.**
**Uses a broad, progressive sales tax.**

## AppendixThe FairTax is progressive.

## AppendixCompliance under current law

**The system’s complexity breeds public cynicism.**
**Complexity favors professional lobbyists over constituents.**
**Compliance costs the private sector a conservative $250 billion/year or about three percent of GDP.**

## AppendixCompliance under the FairTax

**Reduces tax filers by more than 80 percent.**
**Concentrates more than 80% of tax collections to less than 15% of retailers.**
**Reduces tax form/filing complexity to an irreducible minimum – state sales tax returns.**
**Encourages compliance via transparency and simplicity.**
**Lowest marginal tax rate means less incentive to cheat.**
**It takes two to cheat.**

## AppendixBorder adjustability

**Better than all plans that do not end payroll taxes**
**Eliminates *****all***** federal tax costs from American exports of products or services **
**Complies with all existing trade treaties**
**Taxes all imports sold at retail in the same manner it taxes American-produced goods sold at retail**
**Brings the most fertile investment tax environment to our shores (zero rate)**

## AppendixTransition

**Less pronounced and more easily handled than under flat, business transfer or value-added tax regimes**** **
**Transition strategy:  Fairness and minimization of market disruption; additional research initiated**** **
**Inventory held on effective date provided a credit equal to the FairTax rate when sold at retail**** **
**Pushes forward the effective date in order to allow time for the various sectors of the economy to adjust**** **

## AppendixEarned Income Tax Credit

**Preserves the spirit of the EITC**
**Encourages work by simply taking *****no***** federal taxes of any kind out of any paycheck, period**
**Eliminates record keeping, preparer expense and abuse, and targeted audits**
**Delivers a negative effective tax rate below the poverty level**
**Requires a simple, once-a-year registration for the FairTax prebate**

## AppendixSeniors

**A broad, progressive sales tax ensures Social Security/****Medicare funding.**
**Prebate zeros federal taxes up to poverty-level spending (and beyond).**
**Cost of living adjustment protects against retail price fluctuations.**
**Effective rates are lower for fixed-income Americans.**
**Tax-deferred funds not taxed on withdrawal, but only when spent at retail on new goods or services.**
**Estate tax complexities end though****accumulated wealth is taxed successfully.**

## AppendixThe FairTax meets all of President Bush’s criteria.

**Simplicity, reduce cost and administrative burden of compliance**
**Appropriate progressivity and fairness**
**Home ownership**
**Charitable giving**
**Pro-growth and job creation**
**Encourage work effort, savings & investment**
**Strengthen the competitiveness of the U.S. ****in the global marketplace**
**Revenue neutrality**

## AppendixThe FairTax meets all of the Democratic leadership’s criteria.

**Fairness (progressive, no tax increase on middle-income families/repeals the alternative-minimum tax)**
**Simplification (far less complex, lower compliance costs, no more “taxpayer’s nightmare”)**
**Fiscal responsibility (revenue neutral/does ****not add to deficit)**

## AppendixRelative stability of taxable bases, 1972 to 2002

**Source:  Ross Korves, chief economist (retired), American Farm Bureau Federation**

## AppendixAmericans For Fair Taxation  (FairTax.org)

**Non-partisan/non-profit**
**Local volunteer leadership in all 50 states and the majority of congressional districts**
**Almost 600,000 members**
**With endorsing, allied, and like-minded organizations, a total grassroots reach above seven million**
**www.fairtax.org**
**1-800-FAIRTAX**

## Selected References

**Tax base and rate calculation**
**	**Jorgenson, Dale, *The Economic Impact of the National Retail Sales Tax, *Final Report to Americans For Fair Taxation, May 18, 1997.
- 	Kotlikoff, Laurence*, Replacing the U.S. Federal Tax System with a Retail Sales Tax – Macroeconomic and Distributional Impacts, *Final Report to Americans For Fair Taxation, December, 1996.
- 	**	**

## References (continued)

**	****Charitable contributions***Giving USA,* 1996, p. 56.
*	**Economic Report of the President*, February 1996, pp. 284, 308.
- 	Reynolds, Alan, “Death, Taxes and the Independent Sector:  Reflections on the Past and Future Growth of Private Charities and Foundations,” The Philanthropy Roundtable, 1997, pp. 27-28.
- 	Clotfelter, Charles T., “The Economics of Giving,” Duke University, July 2002.

## References (continued)

**	****State sales taxes**
- 	Mazerov, Michael, “Expanding Sales Taxation of Services:  Options and Issues,” Center on Budget and Policy Priorities, June, 2003.** **
**	****Economic growth & savings**
- 	Auerbach, Alan, “Tax Reform, Capital Allocation, Efficiency, and Growth,” in *Economic Effects of Fundamental Tax Reform*, ed. Henry Aaron and William Gale (Washington:  Brookings Institution Press, 1996), p. 58.
**	**Golob, John E., “How Would Tax Reform Affect Financial Markets?” *Economic Review*, Federal Reserve Bank of Kansas City, Fourth Quarter, 1995**.**

## References (continued)

- 	Robbins, Gary and Aldona, "Eating Out Our Substance:  How Taxation Affects Savings," Institute for Policy Innovation, Policy Report No. 131, September, 1995.** **
- 	**Compliance **
- 	Edwards, Chris, “Simplifying Federal Taxes:  The Advantages of Consumption-Based Taxation,” Policy Analysis No. 416, Cato Institute, October 17, 2001.
- 	Edwards, Chris, “Options for Tax Reform,” Policy Analysis No. 536, Cato Institute, February 24, 2005.
**	**Dronenburg, Ernest J. “SAFCT:  State Administered Federal Consumption Tax:  The Case for State Administration of a Federal Consumption Tax,” paper presented at NYU Annual State and Local Taxation Conference, New York, Nov. 30, 1995
**	**