A message from Senator Robert Clegg
New Hampshire State Senator Robert Clegg is currently running for congress in New Hampshire’s 2nd congressional district. A Republican, Senator Clegg served four terms in the New Hampshire House of Representatives prior to his current term in the state senate.
Senator Clegg is a supporter of the FairTax and offers this post to The Fair Tax Blog with his thoughts on the “stimulus” package and the FairTax:
This week folks will see checks in the mail from the federal government. As part of the so-called stimulus package, the government is returning $600 that it originally took from your paycheck. Apparently Washington politicians have come to the realization that more money in your pocket will stimulate the economy and create jobs. The cost of notifying you of the $600 being returned to your pocket is somewhere in the neighborhood of $42 million and that didn’t even cover the cost of printing new checks and mailing them back to you!
Imagine if the government had left that money in your paycheck in the beginning. Imagine if the government didn’t spend $42 million to let you know it was sending you back some of your hard earned dollars. Imagine if the government didn’t spend millions more of your money sending you back your money.
That is why I am a proponent of the Fair Tax. Lets leave the paycheck with the family. Let’s not tax the worker who takes on a second job to send his daughter to college rather than sitting back relying on the government to increase taxes to do it for him. Let’s change the system to one where your purchasing decisions determine what taxes you pay and your productivity is rewarded not punished.
It’s time for America to allow a family to work hard to better itself, to feed itself, to nurture the belief that a self-sufficient, self-reliant population is a better place than one that waits for government to do it all. We need to reward hard work. We need to leave the paycheck in the pocket of those who have earned it. The time has come for a Fair Tax.
NH State Senator Bob Clegg
Great post!
I believe the Fair Tax is by far the best system for taxation out there...
Good deal. We need someone to spread the word about the FairTax in the Northeast. Just out of curiosity (someone far more entrenched in the muck and mire of rate and study and counter-study minutia may be able to help me out on this), have FairTax opponents on this board and elsewhere factored in the reduced government spending by way of abolishing the IRS? I have no idea what the annual budget numbers are for the IRS (not that it matters much, I suppose. Being a government agency, having to actually stay within a budget is really obsolete nowadays), but it seems they should be taken into accountn as well as the massive amount of revenue that slips through the confiscat... I mean, COLLECTION, cracks every year. If this has already been factored in, please humor my ignorance.
Tennessee,
I admire your enthusiasm, but how about sharing with us all just why you think the Fairtax is the best tax system? Nothing complicated, please, perhaps just list five things you really like about the Fairtax? Thanks!
Bradley, The Beacon Hill Institute estimate is that the federal government would be able to cut $8 billion from the IRS budget of $11.01 billion (in 2007), reducing the size of federal tax administration by 73%. This is factored into the studies on tax rate. Evasion of the FairTax is not factored into the rate. There are arguments for why it would be lower or higher than the current system. Did AFFT ever put out a study on this? Anyway, I’m sure the FairTax will have plenty of its own cracks.
But the FairTax would replace the IRS budget by paying out 0.5% of all revenue collected to the states and businesses. The bill also established two new bureaus - one (the Sales Tax Bureau) with functions not currently handled by another agency - and requires Treasury to assume the cost of managing the prebate.
Fred,
The Social Security Administration under the Treasury Department already sends out over 23 million payments each month, most of which are direct deposit. The prebate will be handled by this exsisting department. Since most of the prebates will be loaded onto debit cards or sent to the household bank through direct deposit there will be no need to grow this department after the initial computer data input and cross reference.
rmforbes, so no increase in cost when going from 23 million payments to 130+ million? Who’s going to process the yearly prebate registration forms - all 130+ million of them? No prebate fraud investigations? And I guess you don’t have to worry about prosecuting fraud since you’re not investigating it.
It’s not necessarily accurate to assume the only additional work for the Social Security department will be initial inputting and cross-checking of rebate forms. I’ll use year 2005 data to illustrate common reasons for rebate revision filings. In 2005, there were 2,230,000 marriages, 1,000,000 divorces, 4,000,000 births and 2,400,000 deaths (I’ve rounded numbers). Unfortunately, I couldn’t readily find simple household relocation or move data. It’s likely many deaths won’t result in revised requests; however, that doesn’t hold true for the other changes in household situations. Unless one assumes every couple who marries is already living together, a marriage could require 2 filings (one from each spouse) or 3 filings (one from the new couple and one from each family if they were living at home); divorces could result in 2 filings; births in 1 filing. Needless to say, the marriage and divorce filings would need more attention to avoid double-counting an individual for payment purposes. How these revised filings would need to be handled and coordinated isn’t clearly spelled out in the bill.
I’ve seen no data addressing how this additional paperwork will be absorbed using current manpower. Nor have I seen data addressing how undelivered, lost or stolen debit card/check complaints will be absorbed using current manpower. I’m not saying it can’t be done – I’m saying I don’t think it’s been thoroughly considered. That might be because of the tendency to compare the rebate form to tax returns that are filed yearly.
I am trying to understand the Fair Tax. The small business owners willhave to collect the Fiar Tax, but we will also have to fiqure out what catagory each person we sell to falls in? There are different tax rates for different catagories?
I do not understand how this is better for the small business? If it is going to be called a “Flat Tax” then it should be a “FLAT TAX” say 20% on everything.
I am all for a better less complex system that provides the power back to the people and maybe I am just not educated in this matter enough and I will work on that, but from what I have read so far, this might not make life better for the millions of small business owners of our Great Country.
Tim, the rate is a flat 23% inclusive to sales (or 30% if applied at the register on cost). It is flat from the perspective of sales, yet has a progressive effective rate on spending for the individual via rebates. There are no catagories (no exemptions) - everything is treated the same. From the small business side, you would remove the burdens of managing federal employee income & payroll taxes and file the FairTax through your state authority (as you might do today with sales taxes). The tax is not charged on B2B transactions that go into the final consumer product or service. As a retailer, you would keep 1/4 of 1% of the tax for administration. One of the greatest predicted strengths of a consumption tax is the positive effect it would have on economic growth, which should be good for small business.
Tim,
It’s really not that tough. There are only two categories, business and government/private purchases. And there are only two rates, zero for registered businesses, and 30% for government/private consumption.
You sound like a small business owner, so you should also be aware that there are frequent reporting requirements, and the small matter of the required surety bond. But you will also get 1/4 of 1% of the taxes you collect for your trouble.
At the 30% rate, you may be tempted to not report some of the tax revenue, but that’s a high risk adventure, and certainly not recommended for the faint of heart. The full resources of the Sales Tax Authority will be looking for fraud, and the penalties are severe.
As a small business owner, could you try to estimate just how much you could save in business costs as a percent of sales if the income tax was eliminated? For instance, no more income tax on profits, no payroll tax on employees, if any, no paying a CPA to do your federal taxes, (although state and local taxes may still apply?), etc., etc. What I’m interested in is just how much, if any, you would have to raise your retail prices in order to send the 30% federal tax money off to the appropriate State Revenue Agency?
Thanks!
Morphh & Hank,
Thankyou for the information, it has been very helpful. I still have a one more question and that is, what happens to the Social Security and Medicare tax the employee pays and the business pays? Does that get paid out of the 30% flat tax?
I am doing a little in-house research to see if I can come up with an estimate on what kind of a differnce this could make for my company.
Tim,
SS pensions and Medicare benefits will be paid from the federal general fund which will get almost all of the 30% sales tax revenue. You will not have to send in the business share of payroll taxes (7.65%), nor will employee dollars from payroll and income tax withholding go to the federal government.
The general consensus on this blog is that the employee withholding for income and payroll taxes will go to the employee, although you might try to use both employer and employee savings to reduce your business costs/retail prices. Kind of depends on the labor market in your particular business. For contractual and fairness reasons, I don’t think any of the employee dollars will be available to reduce costs.
That leaves your business income tax (if any), your share of payroll taxes, and whatever compliance costs you can attribute to the income tax that can be used to reduce retail prices, give employee pay raises, increase shareholder dividends, expand your business, or increase your profit margin.
I look forward to your analysis of just what cost savings your business might experience if the income tax and payroll tax were eliminated?
Tom, Yes - SS & Medicare would be paid out of the sales tax. The sales tax would replace all federal income taxes (including corporate taxes and capital gains taxes), as well as payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes.