The Fair Tax Act, Part XLVII
Section 704 talks about government enterprises, which are treated more or less like businesses:
`SEC. 704. GOVERNMENT ENTERPRISES.
`(a) Government Enterprises To Collect and Remit Taxes on Sales- Nothing in this subtitle shall be construed to exempt any Federal, State, or local governmental unit or political subdivision (whether or not the State is an administering State) operating a government enterprise from collecting and remitting tax imposed by this subtitle on any sale of taxable property or services., Government enterprises shall comply with all duties imposed by this subtitle and shall be liable for penalties and subject to enforcement action in the same manner as private persons that are not government enterprises.
`(b) Government Enterprise- Any entity owned or operated by a Federal, State, or local governmental unit or political subdivision that receives gross payments from private persons is a government enterprise, except that a government-owned entity shall not become a government enterprise for purposes of this section unless in any quarter it has revenues from selling taxable property or services that exceed $2,500.
`(c) Government Enterprises Intermediate Sales-
`(1) IN GENERAL- Government enterprises shall not be subject to tax on purchases that would not be subject to tax pursuant to section 102(b) if the government enterprise were a private enterprise.
`(2) EXCEPTION- Government enterprises may not use the exemption afforded by section 102(b) to serve as a conduit for tax-free purchases by government units that would otherwise be subject to taxation on purchases pursuant to section 703. Transfers of taxable property or services purchased exempt from tax from a government enterprise to such government unit shall be taxable.
`(d) Separate Books of Account- Any government enterprise must maintain books of account, separate from the nonenterprise government accounts, maintained in accordance with generally accepted accounting principles.
`(e) Trade or Business- A government enterprise shall be treated as a trade or business for purposes of this subtitle.
`(f) Enterprise Subsidies Constitute Taxable Purchase- A transfer of funds to a government enterprise by a government entity without full consideration shall constitute a taxable government purchase with the meaning of section 703 to the extent that the transfer of funds exceeds the fair market value of the consideration.
So basically we treat government enterprises (like the post office or a public works division) like they are businesses, with certificates and all that. They are tax-exempt when doing business. However, if they transfer goods or services to the government that owns them, these goods or services are taxable (and straight funds transfers as well).
Let me see if I understand this part of the bill. We have previously been told that we must tax governments at all levels in order to keep them out of the private sector (and raise our taxes in the process), and, in this section, we don’t tax government enterprises, thus ensuring that those enterprises will never be transferred to the private sector.
Here are the twelve largest government corporations or enterprises: AMTRAK, Corporation for Community Service, Export Import Bank, FDIC, Federal Reserve, Institute of Library Services, Inter-American Foundation, National Science Foundation, OPIC, Pension Benefit Guarantee Corporation, TVA, and the US Postal Service.
One thing everyone seems to agree on is the need to reduce the size and cost of the Federal government. I wonder how many of the corporations listed here might be privatized if, under government control, they were taxed just like the rest of the government? Would the private sector then have an edge and be able and willing to compete? What are the arguments against privatizing AMTRAK, TVA, USPS, EXIM, etc., etc.?
Is this really good for the country?
Actually, nearly every government enterprise is very nearly private. They are not funded with tax dollars, they are funded with the proceeds from their own work. Several such enterprises do eventually go private if profit potential exists, like Sallie Mae Corporation, which used to be a government enterprise specializing in student loans.
The USPS is virtually privatized in practice though not in law. The USPS is still considered an agency of the Federal government, but has near-autonomy, collects its own fees, uses no taxes, etc. However, it has quasi-governmental powers to negotiate treaties, and has sovereign immunity.
AMTRAK is a much more appropriate example of government competition that should be eliminated. It is federally subsidized to compete in the private sector, and has been losing money for quite some time. If privatized, it might have a shot at turning profit one day, and if not, it would be dismantled and replaced by cheaper transit.
I personally believe that some of these government enterprises more closely resemble private business than others, but it makes little difference. If we taxed them in the same manner as the Fed, it makes little difference as the Fed gets the moneys back that it uses for subsidizing their work. Ultimately getting the Feds out of these businesses will require more than simple privatization. It will take the will to untangle the knot of government roles and privileges assigned to them as well.
It’s not totally correct to say that the government corporations listed are “funded with the proceeds of their own work”. A quick check of the 2007 budget turned up the facts that the budget has: $851 million for the Corporation for Community Service; $262 million for the Institute of Library Services; and $6 billion(?) for the National Science foundation. And I also learned that the grand old TVA is $25 billion in debt? I was unable to determine if any of these Corporations showed a profit and returned any of these subsidies back to the Treasury?
Most aren’t profitable per se. I think the best of them break even on their own, but the government subsidizes many of them regardless of their profitability, so many don’t have to be profitable to keep operating ‘in the black’ so long as the Fed continues to fund them. So far as I know none of them returns funds to the Feds (except via taxation of incomes). My point was that most of them operate on slim Federal budgets (though some do not) and they largely pay for themselves (although again, not entirely).
However, the National Science Foundation is not a good example of a ‘government enterprise’ as it doesn’t profit, it merely funds research and acts as a government agency. I don’t even think it is a corporation (could be wrong here).
Now the TVA is a holdover from the New Deal Era and really does need to be privatized (and probably chopped up into separate business endeavors). I betcha AEP would purchase their power plant.