No more pitting us against each other. Today’s hopelessly complicated tax structure unfairly pits one American against another. Marriage penalties, arbitrary annual extenders, and special-interest tax breaks typify a massively complex and inefficient tax code-and needlessly divide us.

Why not sweep all that away and replace it with a system that’s simple and fair to all? Under the New Fair Deal, distorting “credits” and deductions will be eliminated, today’s seven brackets will be reduced to just two, and taxation will be much more simple and efficient for everyone.

It then goes on to list some basics of the plan:

https://fairtaxer.wordpress.com/2012/06/10/was-mitt-romney-right-about-the-fairtax/

During the 12 September 2011, Republican Presidential debate, Governor Romney made the following statements in response to a question about the FairTax.

“But the way the fair tax has been structured it has a real problem and that is it lowers the burden on the very highest income folks and the very lowest and raises it on middle income people. And the people who have been hurt most by the economy are the middle class. And so my plan is for middle income Americans, no tax on interest, dividends or capital gains. Let people save their money as the way they think is best. We’re taxing too much, we’re spending too much and middle income Americans need a break and I’ll give it to them.”

The claim made by Governor Romney, that the FairTax would lower the tax burden on the lowest and highest incomes while raising it on the middle-income wage earner (current tax code implied), is inconsistent with the preponderance of information that may be accessed from multiple sources comparing the FairTax with the current tax code. That being so, I will refrain from further comment on this point made by the Governor and defer to the reader to present argument to the contrary. As to the Governor’s implication that his tax proposals will be less of a burden on the middle-income earner than that anticipated with the FairTax legislation, I have not, as of this writing, discovered a study that would either directly support or discredit the Governor’s claim. Therefore, it will be the intent of this document to present the specifics of the Governor’s proposals with that of the FairTax legislation for the purpose of conducting a comparative analysis that will either substantiate or refute the Governor’s claim.

Laurence J. Kotlikoff, a Boston University economist who is a columnist for Bloomberg View and previously endorsed the FairTax, now proposes what he calls the Purple Tax (a blend of red and blue), a consumption levy that he says cleans up some problems with the FairTax. It taxes the benefits that homeowners get from living in their own homes. That catches people who would shelter income by buying big houses. It also attempts to tax Americans’ consumption abroad. And it would tax inheritances and feature a payroll tax that, in a nod to liberals, exempts the first $40,000 of income and has no ceiling.

From the Purple Tax Plan:

The Purple Tax Plan replaces the federal personal and corporate income taxes as well as the estate and gift tax with a broad-based, low-rate, progressive consumption tax and a low-rate, progressive inheritance tax. It also makes the highly regressive FICA payroll tax highly progressive. The plan eliminates the need for households to file tax returns and enormously simplifies business tax compliance.

In considering the Purple Tax Plan, please bear in mind that we can have a highly progressive tax system without high marginal tax rates. The Purple Tax Plan features lower marginal tax rates than the current system, yet achieves a much more progressive distribution of tax burdens. It should also generate substantially more revenue. This is due not to “trickle down” or the Purple Tax Plan’s very likely strongly positive growth effects, but simply the fact that consumption is a very broad tax base.

We certainly need more revenue. Based on the Congressional Budget Office’s long-term forecast of June 22, 2011, our nation’s fiscal gap – the difference measured in the present (the present value) of all future projected spending, including servicing the existing debt, and all future taxes is $211 trillion! The fiscal gap represents, in effect, the nation’s credit card bill. Unfortunately, we’re not even paying interest on this liability, which helps explain its $6 trillion growth over the past year. The Purple Tax Plan would shave roughly $36 trillion off our fiscal gap.

Many people view consumption taxation, imposed as a fixed-rate retail sales tax, as regressive and the taxation of wealth, in addition to wages, at a fixed rate as progressive. Since doing one is mathematically and functionally equivalent to doing the other, both views can’t be correct. In fact, both are wrong.

Taxing consumption or, equivalently, the resources used to pay for consumption at a fixed rate is neither progressive nor regressive, but proportional. I.e., if you double economic resources (current wealth plus current and future wages), you double the consumption that those resources will finance, when both quantities are properly measured as present values. Hence, with a fixed consumption tax rate, doubling economic resources will double consumption and double the associated taxes. This is why economist say a consumption tax is proportional.

To make the Purple Tax Plan’s consumption tax truly progressive, the plan includes a monthly payment (demogrant), which ensures that those living at or below the poverty line pay no tax, on net, on their consumption.

• Current circumstances call for bolder action.
• The Phase 1 Enhanced Plan incorporates the features of Phase One and gets us a step closer to Phase two.
• I call on the Super Committee to pass the Phase 1 Enhanced Plan along with their spending cut package.
• The Phase 1 Enhanced Plan unites Flat Tax supporters with Fair tax supporters.
• Achieves the broadest possible tax base along with the lowest possible rate of 9%.
• It ends the Payroll Tax completely – a permanent holiday!
• Zero capital gains tax
• Ends the Death Tax.
• Eliminates double taxation of dividends
• Business Flat Tax – 9%
  • Gross income less all investments, all purchases from other businesses and all dividends paid to shareholders.
  • Empowerment Zones will offer additional deductions for payroll employed in the zone.
• Individual Flat Tax – 9%.
  • Gross income less charitable deductions.
  • Empowerment Zones will offer additional deductions for those living and/or working in the zone.
• National Sales Tax – 9%.
  • This gets the Fair Tax off the sidelines and into the game.

Debt Free America Act – States as purposes of this Act the raising of sufficient revenue from a fee on transactions to eliminate the national debt within seven years and the phasing out of the individual income tax.

• Amends the Internal Revenue Code to impose a 1% fee, offset by a corresponding nonrefundable income tax credit, on transactions that use a payment instrument, including any check, cash, credit card, transfer of stock, bonds, or other financial instrument, the only exception being transactions involving the purchase or sale of stock. Defines “transaction” to include retail and wholesale sales, purchases of intermediate goods, and financial and intangible transactions.
• Establishes in the legislative branch the Bipartisan Task Force for Responsible Fiscal Action to review the fiscal imbalance of the federal government and make recommendations to improve such imbalance. Provides for expedited consideration by Congress of Task Force recommendations.
• Repeals after 2017 the individual income tax, refundable and nonrefundable personal tax credits, and the alternative minimum tax (AMT) on individuals.
• Directs the Secretary of the Treasury to: (1) prioritize the repayment of the national debt to protect the fiscal stability of the United States; and (2) study and report to Congress on the implementation of this Act.

Theoretically, everyone would pay one cent on the dollar for every such transaction in America every day — whether $3 million on a $300 million business acquisition, $300 on the purchase of a $30,000 car, or $5 on a $500 ATM withdrawal.

To reduce the impact of such a flat tax on the poor, Fattah’s bill provides for a 1 percent tax credit for couples earning $250,000 or less ($125,000 or less for individuals) and discretion by the Treasury Department to exempt certain transactions on which lower-income people disproportionately rely. Another idea would be to amend his bill to exempt all transactions below $500.

Using 2008 numbers as an example: There was $755 trillion in total transactions that year. If you deduct the exempted $312 million in stock transactions, that leaves $443 trillion as the tax base, minus the cost of the tax credit and other possible measures to soften the impact on the poor.

Here are the principal elements:

• Health Care. The plan ensures universal access to affordable health insurance by restructuring the tax code, allowing all Americans to secure an affordable health plan that best suits their needs, and shifting the control and ownership of health coverage away from the government and employers to individuals.

It provides a refundable tax credit—$2,300 for individuals and $5,700 for families—to purchase coverage (from another state if they so choose) and keep it with them if they move or change jobs. It establishes transparency in health-care price and quality data, so this critical information is readily available before someone needs health services.

State-based high risk pools will make affordable care available to those with pre-existing conditions. In addition to the tax credit, Medicaid will provide supplemental payments to low-income recipients so they too can obtain the health coverage of their choice and no longer be consigned to the stigmatized, sclerotic care that Medicaid has come to represent.

• Medicare. The Road Map secures Medicare for current beneficiaries, while making common-sense reforms to save this critical program. It preserves the existing Medicare program for Americans currently 55 or older so they can receive the benefits they planned for throughout their working lives.

For those under 55—as they become Medicare-eligible—it creates a Medicare payment, initially averaging $11,000, to be used to purchase a Medicare certified plan. The payment is adjusted to reflect medical inflation, and pegged to income, with low-income individuals receiving greater support. The plan also provides risk adjustment, so those with greater medical needs receive a higher payment.

The proposal also fully funds Medical Savings Accounts (MSAs) for low-income beneficiaries, while continuing to allow all beneficiaries, regardless of income, to set up tax-free MSAs. Enacted together, these reforms will help keep Medicare solvent for generations to come.

• Social Security. The Road Map preserves the existing Social Security program for those 55 or older. For those under 55, the plan offers the option of investing over one-third of their current Social Security taxes into personal retirement accounts, similar to the Thrift Savings Plan available to federal employees. This proposal includes a property right, so those who own these accounts can pass on the assets to their heirs. The plan also guarantees that individuals will not lose a dollar they contribute to their accounts, even after inflation.

The plan also makes the program permanently solvent by combining a modest adjustment in the growth of initial Social Security’s benefits for higher-income individuals, with a gradual, modest increase in the retirement age.

• Tax Reform. The Road Map offers an alternative to today’s needlessly complex and unfair tax code, providing the option of a simplified system that promotes work, saving and investment.

This highly simplified code fits on a postcard. It has just two rates: 10% on income up to $100,000 for joint filers and $50,000 for single filers, and 25% on taxable income above these amounts. It also includes a generous standard deduction and personal exemption (totaling $39,000 for a family of four), and no tax loopholes, deductions, credits or exclusions (except the health-care tax credit).

The proposal eliminates the alternative minimum tax. It promotes saving by eliminating taxes on interest, capital gains, and dividends. It eliminates the death tax. It replaces the corporate income tax—currently the second highest in the industrialized world—with a business consumption tax of 8.5%. This new rate is roughly half the average in the industrialized world and will put American companies and workers in a stronger position to compete in a global economy.

Read more about the Roadmap for America at Paul Ryan’s site.

Embedded income tax costs eliminated with FairTax

Roger Buchholtz, MI FairTax Director, recently wrote to us asking that we focus on another huge problem created by the income tax system – embedded and hidden income tax costs. He’s right; it’s the part of the income tax iceberg that lives dangerously hidden beneath the surface of our economy and our tax structure. Every consumer pays them hidden inside retail prices, wages and benefits are often depressed because of them, and American companies are at a severe price disadvantage with foreign competitors because of them. The FairTax eliminates these hidden tax costs and - among other advantages - allows retail prices to drop in their absence.

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