The GOP's UN-Fair Tax Goal

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Unable to make any headway in the Congress for a national retail sales tax, now referred to as the "Fair Tax" proposal, proponents have embarked on a different strategy. And so far, it's working.

When Republicans were in control of Congress, a debate was begun on how to eliminate the progressive income tax system which imposes higher rates for those accruing greater incomes. The two main alternatives to Income Tax reform were the Flat Tax and the Sales Tax (now spun into the "Fair Tax" by name).

Republicans now champion the "Fair Tax" proposal which would impose little to no taxes on person's and corporations of wealthy means. But, how to force the "Fair Tax" option into the 2008 race, in the absence of any major candidates championing it as part of their campaign, was the question posed to its proponents. They came up with an answer.

The Washington Times, in a piece of high spin writing, reports:

[Fair Tax] supporters have taken a decidedly outside-the-Beltway approach to stirring up support, using activists in places like Iowa and early-primary states such as Florida to try to win attention in the presidential contests.

"We got there by deciding there were a few places in the country that candidates had to talk face to face with people," said Ken Hoagland, the spokesman for Americans for Fair Taxation, the nonprofit group pushing the FairTax. "We knew that people love the FairTax, and we would have very little success lobbying in Washington, so we took our message to people in the primary states and asked them to take the message to the candidates."

The article goes on to say that such a bottom up strategy of getting proponents into these campaign areas to encourage Republican voters to ask the Republican candidates about their stand on the "Fair Tax" plan, has had some success. The Times article explains that six GOP candidates have signed on. They report Mike Huckabee was asked about it by so many potential supporters while campaigning, that he was forced to inquire into the plan, obtain a copy of it, and upon reading it a couple times, concluded that he will champion it as part of his political campaign for President.

As far as this bottom up approach to forcing an issue into an election campaign, this strategy is proving successful. Another aspect of the strategy is more commonplace and familiar, highlight the positives and never speak of the negatives, leaving those to the plan's opponents, which will in part, paint the opponents as naysayers by their own words. The Washington Times partakes in this strategy adding the following 'highlight the positives' commentary:

Supporters say they could abolish the income tax, the Internal Revenue Service and the April 15 paperwork headaches and replace it with a 23 percent tax on all retail sales. There are no exemptions, but the government would pay a monthly rebate to every taxpayer to make up for what is spent on essentials such as food and clothing.

At first read, it sounds good. Yet, there are some contradictions here upon re-read. What agency of the government is going to process those rebates to the poor? Surely, some form of Internal Revenue Service will need to oversee that process. So the argument that the Internal Revenue Service would be eliminated is only partially true. Then there is the direct contradiction in one sentence, there will be no exemptions except for low income consumers who will be exempted in part via rebate checks on taxes paid for necessities.

But, critics of the plan have ample evidence to counter-attack this proposed revenue strategy besides those made obvious in the selling points. Wealthy persons have tax incentives to give to charity. With a sales tax system, the tax based incentives for charitable giving are gone.

Next would be critic's question: Who doesn't pay a fair share for government services? Answer: the wealthy folks in America and corporations and businesses. Bill Gates tax returns are not publicly available as far as I know. But, it is safe to say, that Bill Gates average spending for his personal life is insignificant compared to his annual income and net wealth. Bill Gates Microsoft shares alone amounted in the last year to $25 Billion dollars. Even if Bill Gates purchased 10 million dollars a year of goods and services in the U.S., his sales tax contribution to pay for federal government services and benefits would amount to less than 2.4 million dollars assuming "Fair Tax" rates of 23%.

Sounds like a lot. But, consider this. Bill Gates wealth has increased each year since the initial offering of Microsoft stock in 1984 by 1.15 billion dollars per year, on average. Based only on his MS stock holdings, his percentage of tax to income is 2.4 million divided by 1.15 billion, or, 0.2 percent, or 2/10's of one percent of his annual increase in wealth. Of course this percentage would be smaller for Bill Gates, because his net annual growth of wealth in other stocks, bonds, income and holdings is significantly more. Compare this to a wage earner making $60,000 per year who spends $60,000 per year whose tax rate is 23%, nearly one fourth of all their annual income.

It is also important to note, that Bill Gates utilizes far more government services than the $60,000 per year wage earner. Bill Gates uses our roads and bridges, trains, and airways far more than the average worker, all of which receive federal tax dollars and serve Microsoft's needs for shipping his products, employees, and supplies. Gates uses far more of the Securities and Exchange Commission's services, Fed. Communications Services, Fed. Trade Commission's services, Interstate Commerce Commission's, US federal court services, and other federal government services which protect his business and ability to enforce his contracts, patents, and trademarks, domestically and internationally.

Microsoft too would be largely exempt from taxes, since it purchases an extremely small amount of retail goods and services, and wholesale goods and services would not be taxed under the "Fair Tax" plan, which does not include a value added tax, commonplace in Europe, which insures business pays a share of the government services which it benefits from.

In addition, the national sales tax proposal would completely eliminate corporations and businesses from paying a share of the costs for the very government that protects and defends the marketplace in which they create their profits. Further, the sales tax would, according to some proponents, also remove employer's incentives and obligations to provide health care insurance, retirement pension plans, and other programs like 401K matching as part of their compensation packages for their employees. This would not come about in the initial passing of the so called "Fair Tax" plan, but, would follow as amendments to the system as their lobbyists coerced and bribed Congresspersons seeking reelection to erode these obligations in subsequent bills.

Hence, the net effect of a national retail sales tax critics will argue is this: Those who use the most of federal government's services, and benefit most from them, would pay the least percentage of their income in taxes to fund government services. This is precisely why Republican's needed to create the misnomer name for this sales tax proposition that would counter the truth of it on its face by calling it the "Fair Tax". It would be anything but fair as those with the most earned dollars and biggest users of federal services, would pay little to nothing for those government services, compared to their less fortunate fellow citizens.

It would be a mistake for current Income Tax reformers and Flat Tax proponents, to underestimate the power of Republican's salesmanship on this issue. Their grass roots up strategy to promote the national sales tax agenda can be enormously effective. The reason is that it is being sold to voters before they have the opportunity or benefit of counter arguments or debate. Which means by the time this proposal is introduced in Congress for debate, a large segment of the population will have already been sold on the idea, and view protest and debate by Democrats as purely partisan having no merit. It is a brilliant strategy which should not be ignored.

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This page contains a single entry by David R. Remer published on September 1, 2007 3:51 PM.

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