Direct Taxation vs. Indirect Taxation

November 14, 2006  ·  Filed under: Education

Today’s income tax is a form of direct taxation, which is to say the government levies the tax directly on individuals and businesses. Most other forms of taxation, specifically sales taxes and excise taxes, are indirect, because they typically tax an activity or a particular item, such as cigarettes or gasoline, as opposed to taxing an individual.

Direct taxation grates on the nerves of the citizenry because it smacks of theft. It is legal, to be sure, and one can make the case that it is legal only because our elected officials made it so, and thus we had a hand in its passage. However, for those of us living today, that is hardly the case. The income tax has been around since before virtually any of us were born, much less able to vote. And in its inception, the income tax barely affected anyone. In addition, the threat of audit and prosecution further enforces the feeling of extortion, to great effect. The IRS enjoys a 70% or so compliance rate in great part due to the fear of prosecution and the very harsh financial and criminal penalties it can enforce.

Sales taxes, on the other hand, don’t smack of theft, even high sales taxes. They are still annoying, but we understand why they are there, and we know that we are agreeing to pay them by purchasing the item that is being taxed. Sales taxes are levied upon a business activity, not upon individuals or businesses directly. Sales taxes do not have the highwayman-like quality of income taxes in that no one demands a certain amount of sales tax from you each year. You determine how much you buy. You control how you spend your money. And short of attempting to defraud someone or conspiring to avoid taxes, there is no legal penalty for not paying.

Maintaining an income tax or any direct tax on citizens has the effect of instituting an organization of government police whose charge is to constantly review your bank accounts and your finances, leaving you alone only so long as you keep paying. You are in effect, paying the government for protection from your government.

My point in discussing this is to, for a moment, bring a philosophical perspective to the argument for the FairTax. We tend to debate about economics a lot in forums such as these. We tend to discuss a lot about who ‘wins’ and ‘loses’ financially. But I think at the core of the FairTax bill is the simple notion that indirect taxation (sales taxes) should be preferable to direct taxation on principle alone, regardless of whether it is easier, or whether it creates more or less revenue, or what have you. It just so happens that the FairTax plan is easier, and revenue-neutral, and all of that good stuff.

What do you think?

Posted by James Kidd  ·  Trackback URL  ·  Link
 
50 Responses to “Direct Taxation vs. Indirect Taxation”
  1. Well written, and I think you won’t get any counter arguments about the wisdom of indirect taxation.

    I want to take this opportunity to address two claims by Fairtax advocates with which I disagree. First, the claim that everyone can control the amount of taxes paid by their purchasing habits. Sounds good, but it really isn’t true IMHO. Half of our consumption is for services, and there are no “used” services. There are no used groceries, restaurant meals, entertainment, gasoline, rental housing, etc. etc. Yes, there are used cars houses, and boats, but let me introduce you to the concept of the “embedded costs of the Fairtax” Although no revenue will flow to the government when you purchase a used good, you are still helping the original owner pay the tax. It’s embedded in the used item price. If it makes you feel better to know you are not sending any money off to D.C., that’s fine, but you are still paying a portion of the tax indirectly.

    The other claim that bothers me is the one about the transparency of the Fairtax. Yes, the tax will be on the register receipt, but unless you have a super anal personality, you will never know how much tax you paid to the Federal government each year. Compared to the income tax return and payroll tax statement at the end of each year, the Fairtax will be a total mystery to most of us that are not willing to keep shoe boxes full of bills and receipts. Maybe I suffer from an income tax mentality, but I’d like to at least know what my share for funding the government really is.

    Hank Van Gieson  ·  Nov 14, 2006 at 12:31 pm  ·  Permalink
  2. Well I would like to respond that in my post here, I was merely stating that at least when you pay a sales tax, you are entering into an agreement in which you pay the tax as you purchase an item. There is no set quota for you each month or year that you must fill, you simply pay taxes as you buy what you need and want.

    While it might not be possible to COMPLETELY escape taxation voluntarily under such a system, one has to admit that you have a much greater degree of control over how one pays taxes if one is paying them with sales taxes. You can budget, you can be thrifty, if you choose. With income taxes, there simply IS NO CHOICE.

    Now in my post I did not address the issue of transparency as it wasn’t central to the idea I was trying to express. I agree that any pay-as-you-go system, be it withholding or a sales tax, tends to disguise the extent of tax burden by spreading it out into small chunks. However, there really is no more efficient way to collect a sales tax, so I feel like it’s a minor issue.

    If you want to know what your share was though, I think it’s far easier to estimate it with the FairTax… take your monthly spending budget, multiply it by 12, then multiply by .23, take out your prebates, and there you go (more or less). Doing income tax calculations is such murky work (because of progressive bracketing and numerous exemptions) that the federal government’s own withholding tables are usually off by a significant amount.

    I would rather have something I could estimate and budget for without the government’s help, thanks very much.

    James Kidd  ·  Nov 14, 2006 at 1:08 pm  ·  Permalink
  3. O.K., I don’t want to beat this thing to death, but I don’t agree with your statement—”While it might not be possible to COMPLETELY escape taxation voluntarily under such a system, one has to admit that you have a much greater degree of control over how one pays taxes if one is paying them with sales taxes. You can budget, you can be thrifty, if you choose. With income taxes, there simply IS NO CHOICE.” I looked at my 2005 spending and was unable to find a single “used” purchase. Help me out here, name something you bought this year that was used. As I said, 50% of everyones typical budget is for services, so they are taxed. Just what is it that is a product you buy that is used?

    As for income tax preparation, I think too much is being made of the problem, at least for individual taxpayers with incomes under $100,000. My return took all of 20 minutes this year using readily available software, and claiming the standard deduction and normal exemptions. My spouse does taxes for AARP, a free service, and they allow about 30 minutes per return. I’m sure businesses see it much differently as well as the very wealthy, which is probably why the Fairtax was conceived by a group of wealthy Houston businessmen.

    Hank Van Gieson  ·  Nov 14, 2006 at 5:03 pm  ·  Permalink
  4. I think Dan Mastromarco said it well.

    The relevant distinction is not whether one pays tax by his own volition or is coerced, but rather the degree to which the various plans suppress economic and civil liberties. By not taxing returns on capital or labor, savings, gifts, charitable contributions or education the FairTax impinges the least on economic freedom. Under the FairTax, taxpayers are no longer forced to choose between work or leisure, investment or consumption because the fruits of one’s labor or capital are not taxed until consumed and then taxed but once. By exempting expenditures before the poverty level from taxation, the necessities of life are untaxed. The taxpayer is given the maximum choice over legal ways to avoid and time taxation. Equally important, because the FairTax is least destructive of economic growth, it extracts a lower proportion of the return to work or savings than any competing plan.

    Jeff  ·  Nov 15, 2006 at 8:10 am  ·  Permalink
  5. I also don’t want to beat the ‘used’ stuff to death, but I think you are missing my point.

    No two people spend their money the same way. One guy making $40,000 per year might be single, far in debt, spending out of sight. Another man making the same money might make that $40,000 into a house note and a retirement plan. With income taxation, they both have to pay the government the same amount of money, regardless. No matter how they budget, they cannot control in any way shape or form their tax burden, short of trying to itemize and pursue tax-sheltered behaviors. Unfortunately many forms of tax-sheltered behaviors are simply more expensive (school loans, more children, etc.) or require you to simply be poor (EIC).

    With the FairTax, an individual’s budgeting affects his taxes, as it should, IMHO. So if you see my point, I am not trying to argue that it should be theoretically possible to pay nothing under the FairTax, or that it is completely voluntary, either. Merely that it is better, providing a degree of control over your tax burden in a way the income tax cannot.

    James Kidd  ·  Nov 15, 2006 at 8:35 am  ·  Permalink
  6. Hank Van Gieson,

    There are basically two ways one can control their level of taxation under the FairTax.

    The first is by shifting spending from new goods to used goods. Buying used cars, used clothes, used furniture, etc.

    The second is by substituting less expensive consumption for more expensive consumption. There’s a big difference in spending between dinner out at a nice restaurant and a PB&J sandwich. Both can be dinner, but one will involve paying a lot more tax than the other. Almost everyone’s life is FULL of spending choices like this that can be used to moderate their tax burden.

    quadrupole  ·  Nov 15, 2006 at 4:31 pm  ·  Permalink
  7. I want what the Founders wanted and spelled out for us in the Federalist Papers and the Constitution.

    Article 1, Section 8, Clause 1: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States”

    The Founders intended for taxation to provide Congress with the power to raise revenue in order to function and serve the people. Nothing more. As for the tax base, Federalist #21 explains the advantages of taxing consumption, and how it keeps power in the hands of the People.

    Article 1, Section 9, Clause 4: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”

    Direct income tax gives government the power to do much more than simply raise revenue, for example rewarding and punishing enemies, controlling the people and economy, and limiting free speech. That’s what the politicians want.

    Unconstitutional, imho.

    Politicians did an end run around the Constitution and took power for themselves that the Founders didn’t intend for them to have. Politicians did it by demogoguery of the popular attitude of wealth envy that pervades yet today: “Soak the rich.” Also, there is substantial evidence that they pushed the 16th Amendment through without sufficient ratification votes.

    Very unconstitutional, not to mention dishonest, imho.

    We are heading away from the Founders’ visions of small government and control by the people, towards Socialism and Fascism, courtesy of the income tax, among other things.

    Is the FairTax constitutional? The AFFT leadership submitted the FairTax to constitutional scholars for evaluation, and they confirmed its constitutionality. The tax base is consumption, controlled by the People, not the government.

    The Founders wanted to tax consumption; that puts the power on the Peoples’ side. The politicians wanted to directly tax income; that puts the power on the government’s side.

    If there’s a better ideological/constitutional argument against the income tax, I haven’t heard it yet. If there a convincing argument for keeping the income tax, flat or otherwise, I haven’t heard it yet.

    If there’s a better replacement for the income tax, I haven’t seen it yet.

    Chad Sargent  ·  Nov 15, 2006 at 10:57 pm  ·  Permalink
  8. Chad,

    While I agree with your views about the balance of power shifting from the states/people to the federal government, I think that raising questions about the constitutionality of the income tax adds nothing to the debate. As my grandmother used to say, “it does no good to look up a dead horses butt!” We are where we are.

    More importantly, you wrote, “Is the FairTax constitutional? The AFFT leadership submitted the FairTax to constitutional scholars for evaluation, and they confirmed its constitutionality.” What is the basis for your statement? I asked the Fairtax leadership the same question some time ago and the (paraphrased) response was “HR25 was prepared by several tax lawyers and they saw no constitutional problem with it”. I then contacted several constitutional scholars and, with their guidance and encouragement, proceeded to examine numerous Supreme Court decisions since 1871 dealing with the issue of “intergovernmental tax immunity”. As the federal government assumes more and more power and responsibility, it’s easy to overlook the fact that we still have in our republic a dual system of government, two sovereign powers- national and state-each operating within the same territory and upon the same persons, but with different functions. Because the power to tax is viewed as the power to destroy, it has been the courts duty to preserve an even balance between the two governments and hold each in it’s separate sphere.

    I think I can assure you that if taxation of state operations by the federal government had been proposed in the 1780′s, the proposal would have failed and our republican form of government would have been jeopardised. There was great concern at the time about creating a too powerful federal entity. Court decisions over the years since have generally denied individual states the right to tax federal operations, and decided in favor of more and more limitations on state immunity to federal taxation. An example might be the right of the feds to tax the NY spring water bottling enterprise. There are many others, the most recent dealing with hazardous waste disposal sites.

    The much maligned Presidents Tax Reform Commission report simply stated that federal taxation of the state/local operations was inappropriate under our republican form of government. On the other hand, the recently released BHI/Kotlikoff base/rate study report, while claiming to address the issue, said only that any burden the Fairtax imposed on state and local government would not differ materially from the burden imposed under current law. It’s not at all clear just what current law example is being referenced.

    This is a very important and difficult issue that is not at all settled. Government consumption at all levels adds $2 trillion to the Fairtax base, without which the inclusive rate would soar to over 31%. However, taxing governments will most likely create a $500 billion net annual revenue shortfall which has not been addressed as far as I know. The BHI report indicated that states could raise other taxes to offset any shortfall, (which the study declined to quantify), and gave no hint what the federal government might do other than increasing the annual deficit or cutting discretionary spending, a real Hobsons choice!

    Will there be a constitutional challenge to HR25 by the states? I certainly don’t know and neither does anyone else. Stay tuned!

    Hank Van Gieson  ·  Nov 16, 2006 at 5:10 am  ·  Permalink
  9. There has been a good deal of discussion on the constitutionality issues and I agree that there is some thin ice to skate on there when it comes to specifically getting the states to help administer the tax. But a lot of solid discussion on these issues can be found here:

    http://www.freerepublic.com/forum/a3971d4b96c73.htm

    The issue of whether or not the states are protected from all taxation is a bit vague, and could be construed many ways as written in the 10th amendment to the constitution. The authors of the article linked above are of the opinion that state governments are not particularly protected from taxation as consumers, so long as their activities aren’t infringed upon.

    James Kidd  ·  Nov 17, 2006 at 9:50 am  ·  Permalink
  10. James,

    Thanks for your research-I had not discovered the Schmitz article.

    Unfortunately, his whole analysis is based on the assumption that bottom line costs will be lower under the Fairtax. Back in 2000 when he wrote the piece, there may have been some agreement with that assumption. But more recently, it has become clear that all of the embedded costs of the income tax can not/will not be removed. Employee wages are not going to be reduced to the current net due to fairness and contractual considerations. The conventional wisdom seems to be that pretax prices will most likely fall by 12% and with the 31% sales tax added, retail prices will initially rise 15%. (1.00x.88×1.31=1.15).

    I tried to contact Professor Schmitz, but there is no one by that name at Georgetown U. or Patton Boggs anymore. Perhaps he passed away? I would like to have inquired if his position might have been different if it could be shown that there would be a $300 billion revenue shortfall for all the states due to having to pay the sales tax.

    Thanks,

    Hank

    Hank Van Gieson  ·  Nov 17, 2006 at 12:49 pm  ·  Permalink
  11. Joseph Schmitz was Inspector General of the DoD for a time (2002-2005).

    James Kidd  ·  Nov 17, 2006 at 5:10 pm  ·  Permalink
  12. Great comment thread, although as most conversations do, this one digressed from the original points set out by Mr. Kidd, and took a turn to Mr. Van Gieson’s points, and then took another turn. So here are mine, first to say what I think of the original post, and the rest addressed mostly to the Mr. Van Gieson (Mr.VG from here on out) regarding his very first comment (#1), and his last (#10).

    The original post was, indeed, well written. And Mr.VG summed it up nicely with “I think you won’t get any counter arguments about the wisdom of indirect taxation.” The comments to his post has proven that pretty well.

    Comment #1 – Mr. VG’s two rebuttals of the fair tax were stated as 1) “The claim that everyone can control the amount of taxes paid by their purchasing habits. Sounds good, but it really isn’t true.” and 2) regarding “the transparency of the Fairtax…you will never know how much tax you paid to the Federal government each year”.

    I think quadropole explained (1) well enough with the explanation of dining out versus dining at home. But let’s compare apples to apples. The groceries of one family versus the groceries of another may be very different in cost. Your Whole Foods organically fed beef might be twice the cost of my hamburger meat. And while it only serves you for one meal, my 5 lbs of hamburger meat may serve me for three meals. So not only did you pay more tax for your Whole Foods meat vs my hamburger meat, you also had to pay even more tax for subsequent meals. This, my friend, is a choice. And not only is it a choice in what you eat, with the Fair Tax, it would be a choice in how much tax you wish to pay.

    The same argument holds true for all products, from name-brand wines, jellies, breads, etc. to their generic equivalent brands. And while the difference in costs of varyious groceries may be small when it comes to peanut butter, or coca-cola, it becomes quite large when it comes to wine, alcohol, and especially pharmaceuticals.

    I hope I haven’t belabored this point too much. But the point is simply that there is a huge difference in the amount of tax spending you can control under the Fair Tax system.

    On to the next one…

    Part (2) of this comment discussed transparency. But the interesting point, Mr.VG, is that while you are among a small group of people who know how much you pay to the federal government each year in taxes, you are most definitely among the minority. That’s why phrases such as “I got money back this year!” are still in circulation. I challenge you to ask 10 passers-by on any city-street to see if they know exactly how much they paid in income taxes last year. If you do this, you will be surprised. This is exactly what Neal Bortz has suggested on his radio show time and time again, that we have NO CLUE what we pay each year in income taxes. And that if we did, we’d be beating on the doors of our congressman. But they usually have a pretty good clue of how much money they got back.

    But I do understand your point. There is a system whereby a citizen can point to their total tax burden for a given year without having to collect and tally receipts at the end of the year. But I believe by the argument above, you’ll agree that this system is overwhelmingly underutilized for the purpose you mention, to understand one’s tax burden.

    But let’s be honest, is this really the point you are after? Because if a simple system is what you (and potentially millions of Americans) are after, then rest assured that capitalism will come to the rescue and some savvy souls will create a company to fit the needs of those consumers. And while this new fandangled service/software would come at a price, it most certainly would be less costly than the amount of taxes you pay each year to support the current “simple” system.

    Last argument…

    In Comment #11, Mr VG made mention of a rising percentage rate of the Fair Tax to approximately 31% in order for the system to be revenue neutral, and that this would result in an overall increase in retail prices by 15%.

    Without arguing the math (because we will never know the true impact until we actually do it), I must remind you that although these prices may, indeed, increase, you are no longer obligated to the pay the federal taxes, so you will have money in your pocket to be able to afford these rates.

    I know this post comes a month later than the last post, but I’ve been offline for the last month.

    -Mark

    Mark  ·  Dec 15, 2006 at 12:37 pm  ·  Permalink
  13. Mark, welcome back, and you can call me Hank if you wish. No need to defer to my advanced age?

    Interesting comments about controlling ones taxes under the Fairtax. If you and others take some sort of pleasure in reducing your taxes by altering/lowering your current life style, do it! I, for one, don’t intend to build my remaining life around tax avoidance. Never have, never will!! And I’ll repeat, the average budget consists of almost half in services of which none are “used”. Yeah, you can forego the premium cable channels and save on taxes, but is that really how you are going to go through life? I don’t think so.

    One related point that disturbs me is the recurring theme that by buying “used” stuff, you will save money because there is no tax. Let me introduce you to the concept of “the embedded cost of the Fairtax”. For example, I buy a $7700 57 inch TV, and pay $10,000 including the 31% tax. When I go to sell it to you, do you think I’m going to forget about the cost of the tax ? Part of the used price will be, in effect, you helping offset the tax I paid. Sure, no revenue will go to the Federal government on that transaction, but the tax cost is still a part of the price equation.

    And finally, if you are right, and most people don’t bother to read their tax return or their end of year pay stub to see how much tax they paid, then shame on them. If they don’t know or care what they pay in taxes, how on earth are you going to get their attention focused on alternative tax systems? How can you argue about the complexity and unfairness of the income tax on the one hand, and then say that no one knows or cares what they pay? Doesn’t seem consistent to me.

    Hank Van Gieson  ·  Dec 16, 2006 at 12:40 am  ·  Permalink
  14. Hank,

    I understand your concerns about folks wanting to recover their tax costs at sale, and it is not a trivial thing to mention.

    However, the price someone is willing to pay and the price someone is willing to sell at usually have to ‘meet in the middle’ except during ‘buyer’s market’ conditions and ‘seller’s market conditions,’ when the buyers and sellers each would have more ability to control price, respectively.

    My point to make is that the price you sell something for is not always something you have that much control over. If you’ve ever had trouble trying to sell a house before, you probably know what I mean. Even if the house is worth say $150,000, if no one is interested in buying, and you need to sell sooner rather than later, you will probably lower your asking price to $140,000 or less to attract more potential buyers.

    With your television example, depreciation will greatly affect the price you’ll be able to successfully sell your TV at. You have a lot of competition just with eBay for example. My big-screen projection TV cost me $2500 in 2004, and is now virtually worthless. If I get $500 for it at auction I will be happy.

    The bottom line is the notion of ‘fair market value’ will generally trump any kind of attempt to try to recover your tax costs.

    James Kidd  ·  Dec 16, 2006 at 10:46 am  ·  Permalink
  15. James,

    I agree with you 100%. The point I was trying to make is the sense I have that some folks seem to believe that a “used” product would have no tax component in the resale price, and I just don’t agree. The cost of the Fairtax is just as embedded as the embedded costs of the income tax. Most people don’t recognize this situation based on, for instance, the Florida 6% state sales tax. No big deal for us Floridians at that rate. But put a 31% tax in the equation and it starts to get the sellers attention. Small point, not very well made by me, and probably not worth nattering about?

    Hank Van Gieson  ·  Dec 16, 2006 at 12:31 pm  ·  Permalink
  16. The truth is, during the framing of our Constitution, states with superior wealth objected to allowing a power of taxation which would allow Congress to tax them in such a manner as would leave them carrying more of the federal tax burden than poorer states as was then the case under the Articles of Confederation which allowed a tax calculated from the value of property. The wealthier Southern States felt that some compensation in their voting strength was necessary if Congress were allowed to lay a general tax among the states in which they would be contributing a larger share of the federal tax burden.

    Eventually, a compromise was reached [Article 1, Section 2, Clause 3] “Representatives and direct taxes shall be apportioned among the several States…….” The unequivocal intention being was an agreed upon rule determining each states’ voting strength in Congress Assembled, and also determined each states’ share of a tax, if imposts, duties [external taxes], and miscellaneous internal excise taxes were found insufficient to meet Congress’s exigencies , and, Congress found it necessary to call upon the states in a general tax to fill the national treasury.

    Seems to me the architects of H.R. 25, the alleged fair tax, and the socialists who worked very hard to adopt the 16th Amendment, both have something very much in common ___ the subjugation of the rule of apportionment by which the people of the various states agreed they would contribute into the common treasury if imposts, duties [external taxes] and miscellaneous excise taxes were found insufficient to meet Congress’s expenditures.

    But the difference between the socialists who promoted the 16th Amendment and the ringleaders behind the alleged fair tax is this.

    The socialists who promoted the 16th Amendment were up front and promoted exactly what they wanted:

    The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

    But the weasels behind H.R. 25, who are obviously the friends of the Washington Establishment’s political plum job empire, are not being up front in saying exactly what they want, which is:

    The Congress shall have power to lay and collect taxes within the various states on the sale of property, real and personal, without apportionment among the several states, and without regard to any census or enumeration.

    Instead of saying exactly what they want, direct access to the people’s property, real and personal, they hide their evil by calling their evil the “fairtax“! But when all is said and done, H.R. 25 is the same socialistic type taxing pig we now have but in a different dress and proposes to expand the reach of Congress‘s taxing power to reach property, real and personal!

    JWK

    “In matters of Power, let no more be heard of confidence in men, but bind him down from mischief by the chains of the Constitution”— Jefferson

    johnwk  ·  May 11, 2007 at 4:34 pm  ·  Permalink
  17. Johnwk – I don’t know why you ascribe evil intentions to supporters of the Fair Tax. I have not found one person who supports this issue because it will provide him with an unfair advantage over his fellow citizens. Most, if not all, of us are trying to do what is best for the American people. We know that a Fair Tax is not going to solve all problems associated with government overspending. All the Fair Tax does is to more efficiently, more transparently, more fairly raise exactly the same amount of taxes as are raised today. We would all like to eliminate excess government spending but that is another battle. One which can be better fought when everyone realizes how much tax they are really paying. If you want to start a grass roots effort to reduce government waste while still providing the services everyone wants, I will be on board with you. I suspect everyone associated with the Fair Tax will also be on the train.

    You claim the Fair Tax is unconstitutional because it taxes state and local governments. Why isn’t todays system unconstitutional for the same reasons? States are paying the same amount of taxes today as they will under the Fair Tax. Only today it is hidden in the cost of the products they buy. So is hidden constitutional while transparent is unconstitutional? If you are robbed without your knowledge it is OK. It is only bad when you realize you have been cheated.

    Congress has the power today to reach into any pocket you have. They tax your income, your work, and your savings and other assets when you are alive. They then reach into your coffin and take a big chunk of what is left when you die. To top it off, they force you, on average, to pay $900 every year to keep records and calculate how much tax to pay. As a percentage of income, cost of compliance is much greater for the poor than for the rich.

    Congress today bows to the whims of free spending lobbyists to grant special favors to certain groups through tax exemptions. You don’t see these directly. But, this means you have to pay more because a special interest group pays less.

    A tax based on what you consume beyond the necessities of life is the fairest approach to taxation that you can have. By definition, anyone who spends beyond the necessities of life can afford to pay something for all of the government services received. The more an individual consumes the more he pays. If three people go to a bar for beer, they each pay the same price for this discretionary spending. If one persons decides to have two or three beers, he pays the same amount for each beer. He pays for what he consumes. The other two only have one beer and they pay proportionally less for their evening out. The two that had only one beer, choose to save the extra money and invest it. This is certainly good for everyone because the economy expands and more jobs are created and there are more products and service available to everyone.

    Look carefully at the Fair Tax, understand how it will work and see if you will be better or worse off under the Fair Tax. If those who will be better off vote for the tax and those who are worse off vote against it, this measure will become law in very little time.

    Remember to honestly look at your total tax bill today. Not just the income tax (withholding and other payments), payroll taxes withheld, and estate/gift taxes. But the taxes paid by business that are passed on to you in the cost of everything you buy. About 9% of the cost of your purchases (necessities or discretionary) are your share of business taxes that would disappear under the Fair Tax. Add up, 7.65% payroll tax, 9% product embedded costs and your income tax assessment. Nearly everyone pays more today than under the Fair Tax.

    When you open your mind and do an honest evaluation of all of the facts, you will become as excited about the Fair Tax as the most ardent supporters. If you have questions or doubts, raise the issue for discussion. Know the truth and it shall set you free.

    Marvin Ammentorp  ·  May 12, 2007 at 9:31 am  ·  Permalink
  18. National Income Tax or National Sales Tax are a diffference without a distinction. They are both Federal taxes.

    The whole scheme established by the Constitution of 1787 is that the States were sovereign, they, by ratifying the Constitution (and later by also being accepted) into voluntary membership into union are the entities responsible to pay for the Federal government load. We are not citizens of these uS (14th non-amendment not withstanding) but citizens of a member State in union.

    The 16th amendment must be repealed. Period.

    A prorated cost of the Federal government disbursed among the member States is the only way to achieve Article 1, Section 9, Clause 4. How the States raise their share of the cost is up to the several States individually.

    Unfortunately, all this debating about modes of collection is a distraction. It does not matter how taxes are collected if the cost of the Central government is not curtailed.

    Jaime  ·  May 12, 2007 at 11:15 am  ·  Permalink
  19. Marvin said:

    I don’t know why you ascribe evil intentions to supporters of the Fair Tax

    ANSWER:

    Marvin,

    My post is directed at “the architects of H.R. 25”, and “the weasels behind H.R. 25”.

    My post is not intentionally directed at the unsuspecting who are being conned by the ringleaders behind the alleged fair tax.

    Marvin said:

    You claim the Fair Tax is unconstitutional because it taxes state and local governments. Why isn’t todays system unconstitutional for the same reasons?

    ANSWER:

    What I really said was:

    “Seems to me the architects of H.R. 25, the alleged fair tax, and the socialists who worked very hard to adopt the 16th Amendment, both have something very much in common ___ the subjugation of the rule of apportionment by which the people of the various states agreed they would contribute into the common treasury if imposts, duties [external taxes] and miscellaneous excise taxes were found insufficient to meet Congress’s expenditures.”

    The 16th Amendment was adopted with the intention to remove the requirement of apportionment for a general tax among the states calculated from “incomes”.

    The ringleaders behind the alleged fair tax are not seeking a constitutional amendment to remove the rule of apportionment as applied to a general tax among the states calculated from the value of property, real and personal. Without such an amendment to our Constitution, the alleged fair tax, if adopted and enforced, would in be violation of our written Constitution and extend Congress’s reach to property, real and personal in an unconstitutional manner, and subjugate the Constitutional rule and intentions by which the people of the various states agree to contribute in a general tax among the states calculated from the their property, real and personal.

    Funny thing is, there is a method by which the alleged fair tax may be laid in harmony with our Constitution___ apportioning it among the states___ but which the ringleaders have failed to promote:

    The Congress shall have power to lay and collect taxes within the various states on the sale of property, real and personal, without apportionment among the several states, and without regard to any census or enumeration.

    Now why do they not promote amending our Constitution with the above required words? I suspect if they did, it would spark the real debate which ought to be taking place regarding tax reform and Congress’s authorized powers.

    The rest of your post is irrelevant to the a discussion about the constitutional rule of apportionment, the intentions for which it was adopted, and direct vs. indirect taxation.

    Regards,

    JWK

    johnwk  ·  May 12, 2007 at 12:09 pm  ·  Permalink
  20. Would it be constitutional to cut the state burden? Assume that the proposed law is amended and the Fair Tax is computed only on personal consumption; no government expenaseditures in the Fair Tax base. Well that would be more honest some would say. The true burden will be 30-40-50 percent; only limited by how wild your imagination happens to be at the moment.

    In 2006, the FEDs collected $2,263.5 billion in income, payroll and estate taxes. They also forced you to incur $270 billion of expenses to determine how much tax you owed. But let’s forget that for now. Personal consumption was $9,422 billion (70% of GDP). Adjusting for the estimated Fair Tax exemptions leaves a base of about $8,000 billion. To fully fund the Federal government, would have required a Fair Tax rate of 28.3%.

    But wait a minute, prices of products would fall by at least 9% when business share of payroll taxes and income taxes and compliance costs are eliminated. That would save the FEDs about $55 billion and eliminating the IRS would save another $10 billion. That means the government only needs $2,200 billion to attain revenue neutrality. That would make the needed Fair Tax rate 27.5%.

    But, the states and local would benefit by 9% on reduced priced goods and services or $88 billion. They would also have reduced payroll cost of 7.65% or $41 billion. The net savings to individual taxpayers would be $147 billion. If that amount is netted against, the federal needs, the tax would be about 25.6% of total consumption.

    Some of these numbers have been rounded but exact calculations wont change the results by very much. It is fine with me if the Fair Tax is amended in this way. Of course methods have to be developed to make sure government isn’t at an advantage over the private sector. Thus causing more services to provided by even bigger government.

    Note: all calculated Fair Tax rates are tax inclusive.

    Marvin Ammentorp  ·  May 12, 2007 at 12:15 pm  ·  Permalink
  21. As I have just shown the esoteric constitutional arguement is specious. If there is a problem, it can easily be overcome. By the way it appears not everyone agrees with your assessment.

    Nice backhand. “My post is not directed by those who are unintentionally being conned by the weasels who designed and lead the Fair Tax” (paraphrased somewhat). How can you know if anyone is being conned or if anyone behind the Fair tax is a weasel with evil intentions? Sounds like libel to me. You have no facts to support your assertions.

    I noticed that you ignored all of the facts presented as not relevant. The real point is you need to open your mind and evaluate the Fair Tax honestly. Then you would realize that the leaders aren’t weasels followed by a bunch of simple naive folks who are being conned.

    Marvin Ammentorp  ·  May 12, 2007 at 12:33 pm  ·  Permalink
  22. Jaime,

    Ron Paul says the same thing ___ it does not matter how taxes are collected if the cost of the Central government is not curtailed, and he is not a co-sponsor of the alleged fair tax not supports it! Who in their right mind would support a proposal which would put every American Family on the public dole, making the majority of American voters dependent upon a government check which socialist Ted Kennedy and Co. would promise to increase during election time to buy votes and keep themselves in power?

    JWK

    johnwk  ·  May 12, 2007 at 3:55 pm  ·  Permalink
  23. Well Marvin, I see I am not allowed to post my response to your last two posts. I figured that would happen.

    johnwk  ·  May 12, 2007 at 4:06 pm  ·  Permalink
  24. Johnwk – I always look forward to reading what others have to say especially if I disagree with them. It is only thru communication that we can reach an understanding. Actually your main points were quite well written and thoughtful. What I don’t like is the unwarranted insults. They add nothing to the debate. The Fair Tax can have a huge impact on America. Whether it is the best possible system or even a good system should be discussed with an open mind where both sides are trying to come to what is best for America; not score debate points.

    I have only been aware of the Fair Tax for the past 5 months. There is still a lot that I have to learn. I pick up ideas from many sources. My views are still being formed. What I have seen up to now has left me convinced that the Fair Tax is superior to the Flat Tax and that both are far superior to the current system. For example, some of the comments about the constitutionality of taxing states has caused me to think that perhaps it is best not to tax government. Governments like business don’t pay taxes. Only people pay taxes. If states are taxed, they will just collect more from individuals to cover the shortfall in their revenues. Why not have the federal government collect the tax directly by a relatively small increase in the Fair tax rate?

    Your comments addressed to Jamie are insulting. “Who in their right mind” “socialist Ted Kennedy”. How you say it is inflammatory not what you say. Your point “would the prebate check make people dependent on the government?” is worthy of discussion. I will think about that and wait for responses from others on this issue.

    Marvin Ammentorp  ·  May 12, 2007 at 10:47 pm  ·  Permalink
  25. Marvin,

    As I have written previously, there is an unintended consequence of providing everyone the prebate. My initial estimate of “50 million freeloaders” was in error, for which I apologised. However, there are still tens of millions of workers that will pay no net federal tax under the Fairtax concept (including the prebate), yet all will benefit from the Social security retirement and medical benefits. Talk about a welfare state?!
    As a senior retiree, having paid FICA taxes all my life, I object to the idea that, under HR25, I will resume paying for my benefits through the national sales tax. And I strongly object to creating a bunch of free loaders!
    Yes, I understand that the EITC creates about 5 million taxpayers that pay no income tax under current law(2004 IRS data), but that is a far cry from the tens of millions created under the Fairtax due to the inflation protected prebate.

    37 million AARP members could be turned off by this issue once they figure out what is going on?

    Hank Van Gieson  ·  May 13, 2007 at 5:36 am  ·  Permalink
  26. JWK: Ron Paul and I think very similarly. It is scary how similiar.

    Jaime  ·  May 13, 2007 at 5:53 am  ·  Permalink
  27. Marvin,

    I do not make “unwarranted” insults. And , my statements are not intended to be insulting. My statement to Jamie, who in their right mind would support a proposal which would put every American Family on the public dole etc. is a legitimate statement/question when one considers what is stated in the Federalist Papers __ a control over a man’s subsistence amount to a power over their will.

    In addition, my reference to “socialist Ted Kennedy” is nothing more than a pertinent identification of a political philosophy . And it is pertinent because the family consumption allowance, making more people in America dependent upon a monthly government check, allows socialists in Congress to promise to increase that allowance during election time to bribe voters and remain in power, just as they are now doing with the federal minimum wage. This is how socialists remain in power __ using government force to tax one economic class for the economic benefit of another economic class which has a larger voting base!

    Under H.R. 25’s family consumption allowance, a factious voting constituency is created which dwarfs anything imaginable in our nation’s history ___ it proposes to reach every household in America, the majority of whom [determined by reasonable calculations], would have a vested interest in always demanding to have their monthly government check increased.

    Such factions, Marvin, are also discussed in the Federalist Papers. If you study FEDERALIST NO. 10, one of the objects of our Constitution’s framers was to remove the causes of faction. And, if you study FEDERALIST NO. 21, you will see how faction is addressed and removed with regard to taxes on consumption ___“ The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. There was no need for a family consumption allowance under our founders plan because necessities were not to be taxed and each article was specifically selected and a specific amount of tax was placed on each article chosen, which then allowed the market place to determine the limit of tax on each article chosen.

    H.R. 25 would elevate class warfare in America to a new and irreversible level under its family consumption allowance and the dependency created would dwarf those now dependent upon a monthly government Social Security check.

    We have already experienced, and are now experiencing the suicidal consequences of creating factious voting blocks in America, the majority of which have been created by subjugating the enumerated powers granted to Congress by our Constitution:

    Federalist Paper No. 45 sums up those powers as follows:

    “The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation and foreign commerce. … The powers reserved to the several States will extend to all the objects which in the ordinary course of affairs, concern the lives and liberties, and properties of the people, and the internal order, improvement and prosperity of the State.”

    H.R. 25 is intentionally designed, under its revenue neutral feature, to finance our Washington Establishment’s political plum job empire [federal employees with outrageous salaries, top of the shelf health insurance benefits, and very, very generous pension plans] which most tax payers can only dream of having. And what do these political plum job holders do___ surprise! They redistribute tax revenue to tax getters for functions not authorized by our federal Constitution. Of course, this redistribution of tax revenue benefits tax getters who just happen to be the Washington Establishment’s power base and is bribed for their vote and keeps the Washington Establishment in power!

    As I correctly stated, Marvin, Who in their right mind would support a proposal which would put every American Family on the public dole, making the majority of American voters dependent upon a government check which socialist Ted Kennedy and Co. would promise to increase during election time to buy votes and keep themselves in power?

    Do you really want to remain a tax slave for tax getters and the Washington Establishment’s political plum job empire?

    JWK

    johnwk  ·  May 13, 2007 at 12:16 pm  ·  Permalink
  28. JWK – Excellent comments. I haven’t personally studied the federalist papers so I have nothing to add there. I also want smaller government, lower taxes and fewer benefits directed to small groups. We seem to agree on those points.

    I don’t agree that the prebate puts every American family on the dole. That implies that they will be dependent on the federal government for their very existence. The same dollar amount goes to every person without regard to income. How does that promote class warfare? If there is an effort to raise the prebate rate, everyone will get the same raise and the tax rate will increase for everyone by the same amount.

    If the definition of the poverty level is increased, those who consume more will pay more taxes and poorer people will have a little more income free of tax. Congress can do all of those same things today. The only difference is they hide it from view with special tax provisions that it takes a trained accountant to determine how to claim.

    Opponents of the Fair Tax come up with objections that on the surface appear reasonable. I guess that is called a strawman. However, they don’t show how that is going to be worse than what is happening under the current tax code. The Fair Tax does not solve all problems with society. It wont cure cancer, stop government waste or end poverty. Neither does the current tax code. All the Fair Tax does is more efficiently and more fairly collect the same amount of tax as is collected today. Hopefully, people will become aware of how high taxes are every time they go to the cash register. Awareness is the first step toward control over spending.

    Stopping the Fair Tax wont stop the government excesses that you mentioned. It only means it will remain more expensive to maintain the same government services. If you have some sensible ways to solve those problems, I would be more than happy to offer my support and encouragement. Try looking at the Fair Tax in comparison to the current system. Will it be an improvement? Will it create bigger problems? Should the proposal be amended to solve any problems that can be identified? If it is protecting the constitution that you are really worried about, would a direct tax on individual consumption (omittiing government from the base) solve your concerns?

    Class warfare is promoted today through the income tax with special benefits to a multitude of of relatively small groups of taxpayers. There is a constant barage of rhetoric that the rich should pay more. Of course the rich are never defined. So the middle class is soon considerd rich for tax purposes; the AMT is only one example.

    It is still my opinion that the Fair Tax, while not perfect, is a vast improvement over the current system. From what I read, it doesn’t appear that the Fair Tax is unconstitutional as written. But, if taxing state and local government on their consumption is not legal, then just tax personal consumption at a higher rate. The individual, not a government entity, will pay the tax in any case. That is certainly no different than the system in effect today.

    Marvin Ammentorp  ·  May 13, 2007 at 5:03 pm  ·  Permalink
  29. 1) Abolish the 16th amendment first then we can go to the consumption tax.
    2) The cut back the Central governmen cost.
    3) Then abolish the consumption tax.

    Oh, heck, just abolish the 16th amandment.

    Go, Dr. No, go.

    Jaime  ·  May 13, 2007 at 8:31 pm  ·  Permalink
  30. Marvin,

    Regarding the “rebate“ as mentioned in the text of H.R. 25, it does in fact propose to put every qualified family on the public dole!

    SEC. 302. QUALIFIED FAMILY.
    `(a) General Rule- For purposes of this chapter, the term `qualified family’ shall mean 1 or more family members sharing a common residence. All family members sharing a common residence shall be considered as part of 1 qualified family.
    `(b) Family Size Determination-
    `(1) IN GENERAL- To determine the size of a qualified family for purposes of this chapter, family members shall mean–
    `(A) an individual,
    `(B) the individual’s spouse,
    `(C) all lineal ancestors and descendants of said individual (and such individual’s spouse),
    `(D) all legally adopted children of such individual (and such individual’s spouse), and
    `(E) all children under legal guardianship of such individual (or such individual’s spouse).

    It is irrelevant that “If there is an effort to raise the prebate [rebate] rate, everyone will get the same raise and the tax rate will increase for everyone by the same amount. .

    We are not interested in financially successful people such as Gates, Forbes or myself for that matter. We are only interested in those who would be dependent upon that monthly government check, their numbers, and createing a captive voting block for our socialists in Congress who would promise to increase that allowance to buy votes and remain in power, just as they now do with the minimum wage and Social Security crowd.

    The estimated median income for a four-person family living in the United States is approximately $67,019 for FFY 2008. The monthly entitlement proposed under H.R. 25 for a family of four is about $400, or, about 7 percent of their monthly income, which just happens to be a very significant dollar amount for these people who are now barely making ends meet. I would say a promise by our socialists in Congress to raise the H.R. 25 allowance by say 2 or 3 percent would influence a majority of voters without question, and I base this reasoning on the actions of our nation’s never ending and whining Social Security recipients, not to mention the hoopla over the federal minimum wage which only affects a very small number of voters!

    Your argument that increasing the rebate will increase the tax rate for everyone by the same amount is the same argument used against increasing the minimum wage. Question is, does this stop our socialist friends in Congress from playing the minimum wage card to existing minimum wage workers? Of course not! The family consumption entitlement would be a very, very welcomed gimmick to be used to buy votes . . . PERIOD!

    It would be disingenuous for anyone to suggest that the family consumption allowance would not create a very dangerous and factious voting block in America which socialists in Congress will be happy to use to bribe voters for their vote during election time to remain in power.

    Now, all this can be avoided, not by the alleged fair tax, but by a repeal of the 16th Amendment with the following words:

    “The Sixteenth Amendment is hereby repealed and Congress is henceforth forbidden to lay “any“ tax or burden calculated from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money”

    This would bring us back to our Constitution’s original tax plan which does provided for taxing consumption, but in a manner in which the market place determines the limit of tax on each article selected for taxation and does not need a family consumption allowance because the necessities of life are not intended to be taxed.

    You also say that from what you read, .it doesn’t appear that the Fair Tax is unconstitutional as written. But, if taxing state and local government on their consumption is not legal, then just tax personal consumption at a higher rate. The individual, not a government entity, will pay the tax in any case. That is certainly no different than the system in effect today.

    I can assure you the alleged fair tax is un-constitutional as it violates the very reason for which Art. 1, Sec. 2, Cl. 3 was agreed to by our founding fathers.

    The framers of our Constitution intended to allow Congress to raise its necessary revenue from imposts and duties [taxes at our water‘s edge], and miscellaneous excise taxes [internal taxes]. And if imposts duties and internal excise taxes were found insufficient to meet Congress’s expenditures, and a general tax among the states were found necessary to meet Congress’s expenditures, the following formula would be observed:

    State`s population

    ——————————X SUM TO BE RAISED = STATE`S SHARE

    Total U.S. Population

    After determining the total sum needed, and each state’s share was calculated, each state’s Congressional Delegation was to then return to their own state with a bill to extinguish their state’s share of the tax. and the various state legislatures and Governors were then to retain the responsibility of having to meet that financial responsibility in their own chosen way, which would prevent Congress from entering the states and taxing the people as Congress may think proper, and manipulating who shall pay the federal burden.

    In addition, Art. 1, Sec. 2, Cl. 3 was also a compromise the insure that those states paying the lion’s share of the federal tax burden in a general tax among the states, would be compensated by a vote in Congresses equal to the financial contribution ___ a vote to be exercised when Congress determines how to spend their money! And this is another aspect of our founding father’s plan, representation with proportional obligation which socialists and the friends of our Washington Establishments political plum job empire hate with a passion, and H.R. 25 is designed to subjugate.

    JWK

    johnwk  ·  May 13, 2007 at 8:35 pm  ·  Permalink
  31. I suppose a better question might be…

    If we passed such reform as you propose JWK (and it would be unlikely to be successful) would this help to bring down government spending, or would it simply create 50 states that act as Federal tax agencies?

    Is there any power given to states to simply NOT pay, or underpay, or would then the Federal government be allowed to tax the people of said state directly?

    If not, then what power is there to stop the Federal government from simply demanding (at gunpoint, potentially, since the Fed controls the military) whatever levels of funding they wish from the states?

    I doubt that having a proportional vote in Congress will really matter, as Federal officials (particularly Senators) seem to feel little or no loyalty to the states that elected them, rather they bribe votes with pork barrel spending while they work on increasingly national issues.

    To put it simply, the Senators and Representatives of any given state are not beholden to the Governor and People of the state they come from. They are autonomous and therefore the link between people paying and people spending does not, to my mind, exist.

    James Kidd  ·  May 14, 2007 at 8:02 am  ·  Permalink
  32. Another amendment that nees to go away, the 17th amendment.

    These uS have been so screwed up for so long.

    Jaime  ·  May 14, 2007 at 8:58 am  ·  Permalink
  33. Jaime,

    Amen to that 17th Amendment.

    BTW, I just attempted to respond to James and my response does not appear. What’s up with trying to post here? How can I post an answer to James?

    JWK

    johnwk  ·  May 14, 2007 at 3:36 pm  ·  Permalink
  34. BACKGROUND

    Our founding fathers intended that if imposts, duties and miscellaneous excise taxes were found insufficient to meet Congress’s expenditures, then an apportioned tax among the states was intended to be laid to make up the shortfall.

    The founding father’s fair share formula for this tax may be represented as follows:

    State`s population
    ——————————X SUM TO BE RAISED = STATE`S SHARE
    Total U.S. Population

    It has been asserted that our founding fathers method to extinguish deficits created by Congress’s reckless spending and borrowing by the above mentioned formula, if put back into practice, would not encourage Congress to end its reckless spending and borrowing. This assertion has been stated as follows:

    To put it simply, the Senators and Representatives of any given state are not beholden to the Governor and People of the state they come from. They are autonomous and therefore the link between people paying and people spending does not, to my mind, exist.

    My answer is:

    I cannot imagine the Governors of the various States and the various state Legislatures would be very thrilled to have their Congressional Delegation returning to their state with a bill rather than the currently expected pork barrel federal hand outs, especially when the Governors and state Legislatures will be left with the burden and responsibility of having to transfer money from their state treasury into the treasury of the united States, or, raising additional taxes within their State and then transferring that money into the treasury of the united States to extinguish an annual deficit created by Congress. And, they especially would not be too thrilled as being the subservient tax collectors for Congress when each of the various States have their own financial problems to deal with.

    What the general tax among the states does, is: (1) creates a fair share formula which is tied to representation, and (2), creates a very real moment of accountability when Congress does not meet its expenses from imposts duties and miscellaneous excise taxes imposed on judiciously selected articles of consumption ___ each of which are self regulating by market forces. As explained by Hamilton in Federalist No. 21, with reference to taxes on consumption, they:

    QUOTE:

    may be compared to a fluid, which will in time find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be by his own option, and can be regulated by an attention to his own resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions __ It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which can not be exceeded without defeating the end proposed, that is, an extension of the revenue__

    [AND]

    the saying is as just as it is witty, that, “in political arithmetic, two and two do not always make four.” If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

    END QUOTE

    Bottom line is, the Founder’s Plan worked so well that by the close of the year 1835, the national debt [which included part of the revolutionary war debt] was completely extinguished and Congress enjoyed a surplus in the federal treasury from tariffs, duties, and customs. And so, by an (LINK)Act of Congress in June of 1836 all surplus revenue in excess of $ 5,000,000 was decided to be distributed among the states, and eventually a total of $28,000,000 was distributed among the states by the rule of apportionment in the nature of interest free loans to the states to be recalled if and when Congress decided to make such a recall.

    BTW, the intention with regard to the general tax among the states and a State not paying its share was, that if a state refused or neglected to pay its share within the time period set by Congress, then Congress was to enter the state and Assess & Levy such States proportion together with the Interest thereon at the rate of six per Cent per Annum from the Time of payment prescribed in such requisition. See, for example:(LINK)Ratification of the Constitution by the State of New Hampshire

    Fourthly That Congress do not lay direct Taxes but when the money arising from Impost, Excise and their other resources are insufficient for the Publick Exigencies; nor then, untill Congress shall have first made a Requisition upon the States, to Assess, Levy, & pay their respective proportions, of such requisitions agreeably to the Census fixed in the said Constitution in such way & manner as the Legislature of the State shall think best and in such Case if any State shall neglect, then Congress may Assess & Levy such States proportion together with the Interest thereon at the rate of six per Cent per Annum from the Time of payment prescribed in such requisition-

    JWK

    johnwk  ·  May 14, 2007 at 4:46 pm  ·  Permalink
  35. JWK – found your post, above. The way you write makes Akismet think you are spam. :)

    You might try posting less cut & paste stuff and write more ‘off the cuff’ as the repetitive nature of your posting is bound to get spam-flagged.

    I still don’t think many parties would approve of individual items of taxation from the government (especially gun rights crowd, fearing taxation of firearms) as opposed to a general consumption tax, and I fear the Fed might simply bill the states for whatever they wished.

    They could claim that the impact to individual citizens was the same, merely the states would have to comply and come up with the revenue on their own. Given the way the SCOTUS has been ruling in the past, I think it would be an easy thing to do.

    Not to mention that if the Fed actually raised the revenue completely on their own via a variety of excise taxes, we might very well HAVE, effectively, a general consumption tax at the end of the day; so many different things would need to be taxed it would be ridiculous.

    James Kidd  ·  May 14, 2007 at 9:05 pm  ·  Permalink
  36. Do we forget that the 17th amendment was enacted in response to several abuses by partisan state Legislators. Wont those same abuses be even more likely in the highly partisan political environment of today? This blog isn’t about the 17th amendment. But, it is interesting that progressives led the fight for both the 16th and 17th amendments. They also brought in womens right to vote.

    It seems some people are willing to make drastic changes without considering how they will work in the real world. The constitution is a living document meant to be responsive to the needs of the people as conditions change. That is why provisions were made for amendments.

    By the way, repeal of the 16th amendment is a vital part of the Fair Tax program. There is companion legislation in both the House and Senate. It isn’t included in H.R. 25 because a constitutional amendment is a lengthy process requiring ratification by 3/4 of the states before it can become law.

    Can we get back to debating the merits of the Fair Tax without being sidetracked by issues not relevant to the discussion at hand? Or is this the real agenda. Obfuscate and talk about unrelated issues to avoid discussion the Fair Tax?

    Marvin Ammentorp  ·  May 14, 2007 at 9:34 pm  ·  Permalink
  37. Marvin wrote:

    By the way, repeal of the 16th amendment is a vital part of the Fair Tax program. There is companion legislation in both the House and Senate. It isn’t included in H.R. 25 because a constitutional amendment is a lengthy process requiring ratification by 3/4 of the states before it can become law.

    The alleged fair tax does not get rid of taxes calculated from profits, gains salaries, and other “incomes”. Neither does H.R. 25 propose to get rid of taxes calculated from profits, gains, salaries and other “incomes”. And, none of the co-sponsors of H.R. 25 propose to get rid of taxes calculated from profits, gains salaries and other “incomes”.

    The architects of H.R. 25 have left a very clever loophole in the language of H.R. 25 allowing Congress to continue calculating taxes from corporate profits and gains. This of course would also allow a continuance of the existing misery of record keeping under taxes laid upon “incomes“.

    H.R.25 stipulates the following:

    SEC. 101. INCOME TAXES REPEALED.
    SEC. 102. PAYROLL TAXES REPEALED.
    SEC. 103. ESTATE AND GIFT TAXES REPEALED.

    Well, isn’t that peachy? But, there is no language in H.R. 25 suggesting to repeal all taxes which may be calculated from profits, gains, salaries and other “incomes”! Why is this pertinent and ought to cause alarm? To understand this one must study FLINT v. STONE TRACY CO., 220 U.S. 107 (1911), a case decided prior to the adoption of the 16th Amendment! The Court upheld an excise tax, the corporation tax law of 1909, which was laid upon the privilege of being a Corporation, and the amount of tax to be paid was calculated from profits and gains realized under the corporate charter granted by government. Although such a tax looks like and quacks like an “income tax”, it is not a generic “income tax” and is not even suggested to be repealed by the language of H.R. 25!

    If H.R. 25 were adopted, our socialist Congress would have no difficulty gaining public support to use its “excise” taxing power to enact a small excise tax on the “windfall profits” of those evil corporations and then calculate the amount of tax to be paid from their profits, or, how about also laying a windfall profits tax on those evil and wealthy scoundrels in America who make millions of dollars a year in profits by bleeding the poor working people, such as was alleged about Leona Helmsley who they sent to jail for an alleged tax fraud, but who actually contributed more in federal taxes than any twenty average working people in New York!.

    If the architects of H.R. 25 were really sincere and determined about ending taxes calculated from income, then they would have said so in crystal clear language such as:

    “The Sixteenth Amendment is hereby repealed and Congress is henceforth forbidden to lay “any“ tax or burden calculated from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money”

    But as it turns out, not one of the co-sponsors of H.R.25 have proposed a companion bill to H.R. 25 with specific language proposing a constitutional amendment to forbid Congress from calculating any tax or burden from “profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money”, and would be necessary to end the misery which now occurs under “income taxation”. What has been proposed is the following clever and empty language:

    109th CONGRESS
    1st Session
    H. J. RES. 16
    Proposing an amendment to the Constitution of the United States to repeal the sixteenth article of amendment.

    Resolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of each House concurring therein), That the following article is proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three-fourths of the several States within seven years after the date of its submission for ratification:
    `Article –
    `The sixteenth article of amendment to the Constitution of the United States is hereby repealed.’.

    And what do the architects of H.R. 25 propose within the language of H.R. 25? The language of H.R. 25 merely says that the 16th Amendment “should be repealed”. But if H.R. 25 were adopted, and 10 or 15 years down the road the 16th Amendment by some remote chance is finally repealed by the above proposed language in H. J. RES. 16, Congress still maintains the power to calculate taxes from profits, gains, salaries and other “incomes” under its excise taxing powers, and, the SCOTUS has already upheld such a tax in the FLINT CASE mentioned above!

    H.R. 25 appears to be a clever way to divide the people and distract them from real tax reform such as:

    “The Sixteenth Amendment is hereby repealed and Congress is henceforth forbidden to lay “any“ tax or burden calculated from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money”

    The above wording would bring us back to our FOUNDING FATHER’S ORIGINAL TAX PLAN which was created by tax rebels and designed to control the actions of Congress, rather than having Congress control the people

    Regards,

    JWK

    johnwk  ·  May 14, 2007 at 11:48 pm  ·  Permalink
  38. Well Marvin, my answer to your above post has not appeared…again!

    JWK

    johnwk  ·  May 14, 2007 at 11:49 pm  ·  Permalink
  39. Snagged your post once more from the fires of Akismet….

    James Kidd  ·  May 15, 2007 at 7:15 am  ·  Permalink
  40. However, I think it is unfair to characterize the FairTax, which certainly makes an honest effort to end income taxation, and companion legislature to repeal the 16th amendment, as being fraudulent or part of some conspiracy to derail the reforms you personally would deem as suitable.

    It is perhaps a fair criticism to say that the FairTax does not go far enough, or that it puts the cart before the horse, not repealing the 16th amendment before its passage.

    But quotes such as this: ‘H.R. 25 appears to be a clever way to divide the people and distract them from real tax reform such as:’ basically sound as if you sincerely believe that Congress as a whole is trying to dupe the country by passing ‘fake’ reforms that in reality change nothing for them. This is of course, not true, as the Fair Tax faces significant opposition, especially from liberals. There is no such conspiracy or unity amongst the Congress.

    Your posts also seem to indicate that you are going to find absolute fault with any reform that is not identical to what you propose.

    James Kidd  ·  May 15, 2007 at 7:24 am  ·  Permalink
  41. You forgot to refute or even address the objections I raised concerning the alleged fair tax.

    The alleged fair tax does not get rid of taxes calculated from profits, gains salaries, and other “incomes”. Neither does H.R. 25 propose to get rid of taxes calculated from profits, gains, salaries and other “incomes”. And, none of the co-sponsors of H.R. 25 propose to get rid of taxes calculated from profits, gains salaries and other “incomes”.

    If my above statement is correct, then H.R.25, the alleged fair tax, proposes to create a new tax in America in addition to Congress having power to calculate taxes from profits, gains, salaries and other “incomes”. Why would anyone in their right mind be in favor of enlarging Congress’s taxing powers which they do when supporting the alleged fair tax?

    JWK

    johnwk  ·  May 16, 2007 at 5:29 am  ·  Permalink
  42. It does those things by striking those sections from the IRC of 1986 that contain the income tax and replacing them with its own.

    ‘SEC. 101. INCOME TAXES REPEALED.

    Subtitle A of the Internal Revenue Code of 1986 (relating to income taxes and self-employment taxes) is repealed.

    SEC. 102. PAYROLL TAXES REPEALED.

    (a) In General- Subtitle C of the Internal Revenue Code of 1986 (relating to payroll taxes and withholding of income taxes) is repealed.

    (b) Funding of Social Security- For funding of the Social Security Trust Funds from general revenue, see section 201 of the Social Security Act (42 U.S.C. 401).

    SEC. 103. ESTATE AND GIFT TAXES REPEALED.

    Subtitle B of the Internal Revenue Code of 1986 (relating to estate and gift taxes) is repealed.’

    So it removes those sections of the IRC that imposed the income tax in the first place.

    They do not use the language you propose, because they are not proposing a Constitutional amendment in HR 25. Generally legislation outside of the Constitution doesn’t create or remove congressional power by specifically stating that ‘Congress may or may not do thus and such.’

    Short of repealing the 16th, this legislation cannot go further than this. As we know many cosponsors of the bill have signed on to bills submitted to repeal the 16th, although perhaps without the specific language you proscribe.

    So I don’t agree that the fair tax does not get rid of taxes calculated from profits, gains, salaries, etc. Because it DOES in fact repeal Sections 101 and 102 of the Internal revenue Code which imposes said taxes, as well as gift taxes and estate taxes in Section 103. Repealing those sections sounds like ‘getting rid’ of said taxes to me. And therefore not only does the bill propose it, but all the co-sponsors also propose it.

    If you instead wish to say that the bill does not PERMANENTLY remove such taxation in a way that could not be undone, that is a fair criticism.

    But that is a far cry from saying that the bill itself is disingenuous in purpose, or that its sponsors wish the opposite of what the bill is promoted to do.

    Again, if you insist on seeing said language ‘taxes calculated from profits, gains, salaries, and other “incomes” then you will only accept the reforms you yourself have proposed, as this language is of your own design. I see little point in attempting to refute points to you again that others have discussed with you time & again, except to try to make sure the issue is not misrepresented here.

    James Kidd  ·  May 16, 2007 at 9:12 am  ·  Permalink
  43. James Kidd wrote:

    “I see little point in attempting to refute points to you again that others have discussed with you time & again, except to try to make sure the issue is not misrepresented here“.

    What is being misrepresented here is the suggestion that “SEC. 101. INCOME TAXES REPEALED”, under H.R. 25, proposes to withdraw Congress’s power to lay excises taxes on Corporations which may be calculated from profits, gains and other “incomes”.

    Fact is, such a tax was imposed by Congress under the Corporation Tax Act of 1909, and it was upheld in FLINT v. STONE TRACY CO., 220 U.S. 107 (1911), a case decided prior to the adoption of the 16th Amendment! The Court upheld the tax, not as a generic “income tax” which is asserted to be repealed by the language of H.R. 25. The tax was upheld as an excise tax, laid upon the privilege of being a Corporation, and the amount of tax to be paid was calculated from profits and gains realized under the corporate charter granted by government. Although such a tax looks like and quacks like an “income tax”, and requires all the misery of record keeping as an “income tax”, it is not a generic “income tax” and is not even suggested to be repealed by the language of H.R. 25!

    We are told by the supporters of the alleged fair tax that Congress would never dare reestablish a tax calculated from income if H.R. 25 were adopted. But this is wishful thinking at best and is not a sound basis for promoting the alleged fair tax.

    Congress is the problem! If Congress were not the problem would we really have a need for “tax reform”? And yet , our wishful thinkers really believe that if H.R. 25 were adopted and enforced, our socialist Congress would not dare think of laying excise taxes on those evil corporations which may be calculated from profits, gains and other “incomes”.

    Somehow I doubt that our socialist Congress would have difficulty gaining popular support from Mary and Joe Sixpack for a windfall profits tax on those evil Corporations “to make them pay their fair share”. Is this not the very language used to soften up Mary and Joe in 1913 to get the 16th Amendment passed?

    Of course, there is a shell game also involved ___ these excise taxes when imposed upon corporations, especially those which may be calculated from profits and gains, would be passed on by corporations to the American consumer who has been lured into paying a new tax in America, a 23 percent tax on consumer goods and services, and will also wind up paying the excise taxes imposed upon corporations which will be embedded in the goods and services Mary and Joe purchase!

    So much for the Boortz’s wishful thinking and assertion about embedded taxes disappearing under the alleged fair tax. So much for the wishful thinking that Congress would not dare impose any taxes calculated from profits, gains and other “incomes” if H.R. 25 were adopted.

    The truth is, under H.R. 25, “SEC. 302. ADMINISTRATION OF OTHER FEDERAL TAXES,” a new federal agency is proposed to be created to collect anticipated “excise“ taxes

    `(d) Excise Tax Bureau- There shall be in the Department of the Treasury an Excise Tax Bureau to administer those excise taxes not administered by the Bureau of Alcohol, Tobacco and Firearms.

    Keep in mind the Excise Tax Bureau is in addition to the Sales Tax Bureau, also proposed to be created to collect the proposed 23 percent tax.

    What these wishful thinkers must come to grips with is ___ Congress is the problem and must be treated as being the problem. We need to work together to withdraw from Congress’s hands the vehicle which causes our tax misery ___ the power of Congress to calculate taxes from profits, gains, interest, salaries, wages, tips, inheritances and other lawfully realized money which is the vehicle used by Congress which causes our misery. And so, this power must be removed from Congress’s hands, e.g.:

    The Sixteenth Amendment is hereby repealed and Congress is henceforth forbidden to lay “any“ tax or burden calculated from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money

    The surprising thing about working to adopt the above words as an amendment to our federal Constitution is, it is working to force Congress to once again raise its primary revenue from taxes in consumption, as our founding fathers intended! Isn’t this what the supporters of the alleged fair tax want? To force Congress to raise its revenue from taxes on consumption?

    JWK

    “In matters of Power, let no more be heard of confidence in men, but bind him down from mischief by the chains of the Constitution”— Jefferson

    johnwk  ·  May 16, 2007 at 6:05 pm  ·  Permalink
  44. So it seems your point, that in the past, Congress passed a corporate income tax in the guise of an excise tax, and got it upheld, etc. and the FairTax and current proposals to repeal the 16th don’t do enough to refute this particular variety of potential abuse. OK, fine. Let’s keep that criticism where it is and say that either you don’t believe that HR25 can do enough to solve the issue or that even repealing the 16th isn’t enough.

    I personally don’t think such legal games will work a second time. Said taxes now form the language of the current corporate income tax and have generally been considered direct taxes on the shareholders of those corporations. I don’t think you could successfully make those kinds of arguments again now that we have had nearly a century of income taxation with court rulings backing that up.

    James Kidd  ·  May 17, 2007 at 8:53 am  ·  Permalink
  45. Well James, I thought you were here “to make sure the issue is not misrepresented here.”

    My points, which you have misrepresented, were made very, very clear in post NO. 37: The alleged fair tax does not get rid of taxes calculated from profits, gains salaries, and other “incomes”. Neither does H.R. 25 propose to get rid of taxes calculated from profits, gains, salaries and other “incomes”. And, none of the co-sponsors of H.R. 25 propose to get rid of taxes calculated from profits, gains salaries and other “incomes”.

    In addition, I provided irrefutable documentation in that post to support my point.

    I also made the point and provided the documentation in post No. 43, that H.R. 25 contains specific language to create a new federal agency, an Excise Tax Bureau, to collect anticipated “excise“ taxes which are not administered by the Bureau of Alcohol, Tobacco and Firearms, and would include any excise taxes which Congress has authority to lay and may be calculated from profits, gains, salaries and other “incomes”. It was also pointed out that the creation of an Excise Tax Bureau is proposed in addition to a Sales Tax Bureau, the latter of which is proposed for collecting the 23 percent alleged fair tax.

    I also pointed out there is a shell game involved with the proposed and alleged 23 percent tax. All excise taxes which may be imposed upon corporations under H.R. 25 would be passed on by corporations to the American consumer who has been lured into paying a new tax in America, a 23 percent tax on consumer goods and services, but will also wind up paying any excise taxes imposed upon corporations which will be embedded in the goods and services Mary and Joe purchase!

    I then said: So much for the Boortz’s wishful thinking and assertion about embedded taxes disappearing under the alleged fair tax.

    Please, James, in the future do not misrepresent the points I have made.

    Thank you.

    JWK

    johnwk  ·  May 17, 2007 at 5:22 pm  ·  Permalink
  46. I didn’t think I had.

    The excise tax bureau is there to handle the existing excise taxes the government already charges on gasoline and such, and is there to replace existing elements of the current IRS that do the same thing.

    I don’t believe that this represents an intention to add a series of new excise taxes on top of the proposed sales tax. The FairTax does not attempt to remove these types of taxes, nor is it advertised to. This is generally because such excise taxes raise money mostly for specific purposes rather than general revenue. Excise taxes of this nature only make up about 3-4% of total Federal revenue today.

    To see specific data please visit the Tax Foundation at this link.

    So I just don’t see the big looming threat of burgeoning excise taxes in our future. They simply aren’t used as a major source of revenue anymore. The broad income tax serves the purpose of primary revenue today, and the FairTax intends to raise similar amounts. I imagine you would tell me that is exactly the problem.

    But that also begs the question of your tax proposal: With a budget in the trillions, how many varied excise taxes would the government have to enact to cover even a one-year transition period? Current excise taxes make up such an insignificant share of revenue today (estimated $73 billion for 2006 out of $2.2 trillion that generally gets raised before tax refunds and such) that it seems they would have a lot of ground to cover.

    Have either you or your late associate enumerated a transition plan for your proposal? I see from some of your other writings that you seem to have co-authored a book, though I haven’t been able to locate a copy for sale anywhere. I wondered if perhaps you had such a transition plan written up somewhere.

    Just out of curiosity, can you provide any further examples of excise taxes calculated from corporate income beyond the one you cited? Is the one you cited still in effect or has it been subsumed by the corporate income tax?

    James Kidd  ·  May 18, 2007 at 10:11 am  ·  Permalink
  47. James,

    I get the distinct impression you are intentionally avoiding acknowledging three specific points I made concerning the alleged fair tax :

    1). The alleged fair tax does not get rid of taxes calculated from profits, gains salaries, and other “incomes”.

    2) The alleged fair tax does not propose to get rid of taxes calculated from profits, gains, salaries and other “incomes”.

    3) None of the co-sponsors of H.R. 25 propose to get rid of taxes calculated from profits, gains salaries and other “incomes”.

    We do know the text of the legislation proposes to suspend, or put a moratorium on a few specific taxes which are calculated from incomes. Now why propose to suspend a few specific taxes which are calculated from “incomes” if the object is to withdraw Congress’s power to calculate taxes from “incomes”? Why leave the door open with loose language when it can be slammed shut by declaring that Congress is prohibited from calculating any taxes which may be calculated from profits, gains, salaries, etc., and other “income’s ?

    I would imagine if the architects of H.R. 25 were sincere in wanting to end taxes calculated from “incomes”, they would have said so in crystal clear language in H.R. 25. There fact that they haven’t leads me to believe their intention is to not end Congress’s power to calculate taxes from “incomes”, and only want the specific taxes suspended which they identify in the legislation. It should also be noted that if H.R. 25 were adopted and Congress decided to lay a windfall profits tax on those evil corporations such as that which was laid in the FLINT CASE, an excise tax calculated from profits, the Court would have no choice but to uphold such a tax because H.R. 25 identifies the specific taxes to be suspended which are calculated from “incomes”.

    Now, is it the intention of the architects to end Congress’s power to calculate taxes from profits, gains, salaries, and other “incomes”? If the answer is yes, then they need to alter the language in H.R. 25, because it is currently defective.

    JWK

    johnwk  ·  May 18, 2007 at 6:03 pm  ·  Permalink
  48. JWK – HR 25 specifically eliminates the income tax, payroll taxes, estate taxes, capital gains taxes, and AMT. Can you enlighten me as to what other specific taxes are calculated from profits, gains, salaries and other incomes? Are you saying this same base could be taxed under a different name? How would this be done; the IRS has been disbanded? Perhaps, you should write to John Linder and let him know that he left a big loophole in HR 25. He may not be aware of this or perhaps he could explain why your reading is incorrect.

    Marvin Ammentorp  ·  May 19, 2007 at 12:23 pm  ·  Permalink
  49. Marvin,

    Let me first say I see no productive consequences in my taking the time to communicate with John Linder who ignores our written Constitution and works to transfer Congress’s power to regulate trade with foreign nations to a group un-elected by the American people under the NAFTA ___ the majority of whom are foreigners!

    That is what the NAFTA/CAFTA is all about ___ subjugating our constitutionally limited Republican Form of Government and placing its regulatory powers in the hands of internationalists who have no allegiance to the American people or the people of any nation. Keep in mind H.R. 25 would benefit these international financiers. This group wants free reign to go about their business even if their business is detrimental to the best interests, health, safety and general welfare of the people of any particular country, and they are determined to have their way, regardless of the consequences which they may inflict upon others___ profit is their bottom line. They are an offshoot of the monopolies, trusts and holding corporations of the late 1800’s and early 1900’s, only now they have found a way to create the law [WTO, World Bank, IMF, NAFTA, CAFTA, etc.] used to plunder the people of nations, and they have found allies in the American People’s Congress, like John Linder, who work in concert with them to subjugate our written Constitution!

    The IRS may be disbanded as you note above, but its employees will be moved into two new federal bureaus [excise and sales] proposed to be created under H.R. 25.

    I have already stated H.R. 25 proposed to put a moratorium on a few specifically mentioned taxes which are calculated from profits, gains, salaries, and other “incomes” ___ taxes which you have mentioned above.

    Aside from those specific taxes you mention, under Congress’s constitutionally authorized power to lay “excise” taxes, it may lay and collect taxes on a particular privilege, certain events, upon a regulated occupation, profession or enterprise over which it has legislative authority and jurisdiction, and, the amount of tax to be paid may be calculated from profits, gains, and other “incomes” which are involved and is not considered a payroll tax, an estate tax, a capital gains tax, or an AMT.

    The amount of an excise tax to be paid may also be measured from total sales [unadjusted income] of a corporation or even sales [unadjusted income] as reflected from passenger tickets issued by a railroad co., an airliner or even a cruse liner. The language contained in H.R.25 makes no mention to withdraw from Congress’s taxing powers these types of “excise” taxes which are calculated from unadjusted “income”, and so, the same misery suffered under income taxation would remain very much alive under H.R. 25___ the alleged fair tax.

    Perhaps, it is you who should write to John Linder and let him know that he left a big loophole in HR 25 based upon what I wrote above. He may not be aware of this or perhaps he could explain to you why my above comments are incorrect. Please feel free to post his response in this forum should you decided the contact him, but, I can assure you the case law is very clear and very well established concerning Congress’s excise taxing powers, and they confirm what I have written above!

    JWK

    johnwk  ·  May 19, 2007 at 5:47 pm  ·  Permalink
  50. I don’t agree that taxing individual is very old one. Infect, it’s a voluntary tax concept initiated in war time for donation to nation. Taxing labour is not good and healthy. we must protest against income tax
    On the other hand indirect taxation is on work. This is as old as civilization itself. Indirect never prick anybody too much. But paying tax on income which ahs already been taxed during or our work always painful ..

    dev  ·  Dec 28, 2008 at 10:57 am  ·  Permalink

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