Welcome back to the discussions. What used to be the most informative and unbiased blog has been deadly quiet of late. I hope that changes.

As for the VAT issue, I’m no expert (or econo-geek) but I don’t think it matters if the producer is a large corporation that can produce the item in-house or a series of smaller businesses that each add a part of the final product. Here’s why.

If the government sets up a 10% VAT, for example, it doesn’t matter if there is one level of production or ten, the total tax collected is still 10% of the final cost. While the dollar value accumulates as a part moves up through the production cycle, the percentage tax does not. As the name indicates, only the value added is important. Many small companies producing a single component of the final item would not be at a disadvantage with one large corporation that produces the end item in-house.

I’m not certain which producer might have lower retail prices, but I sort of think many small producers, all having lower overhead costs, might win out? Just a thought

My bottom line is that the $11 trillion in US owned wealth, hiding in offshore banks, is a Fairtax/Boortz myth. And, the $14-$15 trillion in corporate overseas investments, while very real, isn’t “coming home” any time soon, if ever.

The overwhelming majority of US overseas funds are likely corporate investments. Much of that is overseas because of a variety of factors including being closer top their markets physically and politically, just as Toyota has several plants in this country. These funds will not come home because of the magic of the FT. I maintain that the $362B that came hoime as a result of the 5.25% tax rate holiday is virtually all that would have come home from a 0% tax rate (the amount of such funds currently “available” to come home is unknown).

Whether foreign corporations will suddenly rush to send all of their money to the US under the spell of the FT is 100% pure speculation, economic “Hope and Change, Change you can believe in, Yes we can”.

The first is the original claim by Boortz in his first book that there was $11 trillion in US wealth hidden away in offshore accounts to avoid taxes.(see page 104) That claim was just plain false. To repeat the only source I have found on this issue, the Tax Justice Network, (an international organization that tries to track offshore holdings), produced a report that showed that in 2005, world wide offshore holdings were indeed around $11 trillion. Of that amount, $1.6 trillion was owned by North Americans, and there are 23 sovereign nations in NA. My best estimate for US owned wealth in offshore accounts was $700-800 billion at that time.

A related but quite different issue is the overseas investments of US corporations. Here, $13 trillion or more has been invested in foreign countries, and foreign investment in the US amo8nted to over $15 trillion. Those US investments aren’t likely to come home just due to a different tax system. There are many other reasons for corporations to invest overseas including skilled labor rates, raw materials, market access, infrastructure, and contractual offsets as part of business decisions. In 2005, corporate income taxes amounted to 3.2% of sales. Are taxes any reason to relocate back to the US? I don’t think so.

By the way, a former Congressman reportedly got Princeton Econometrics to do a survey of foreign businesses. We have since been deluged with “facts” that show that all companies surveyed said they would relocate to the US given the Fairtax. The trouble is that no one has ever seen the actual survey questions, let alone the results. Can anyone help with this one?

While responding to my and Hayden’s request to support the claim of $15T, please also explain the magic of $15T coming home because of a 0%
rate when the fabulouslyu low 5.25% rate brought in only $362B.
Please also explain why you feel that ONLY the FT will bring that money home and why other simpler methods, including some I noted in 8, above) won’t work.

The bigger picture of this subject is that ANY elimination of the US corporate tax (even one merely limited to eliminating the tax on repatriation of foreign earnings) would give corporations an incentive to bring home those funds. That is, WE DO NOT NEED THE HORRENDOUS FAIR TAX TO ACCOMPLISH THAT!

While I have not studied the specific FT sales pitch on this point, can someone point me to any “independant” strudy that tells us mnore precisely how much is truly out there that would be repatriated a) with simply another 5.25% tax on repatriated earnings, b) by simple a 0% tax on repatriated earnings, or c) a complete elimination of the US corporate IT replaced with something other than the “fairtax”.
Further, it seems most unreasonable that the 5.25% rate brought back a mere $362B, but that 0% will bring back $13-15T. As a former large corporate tax consultant, it seems to me that surely any rational corporation would have recognized that 5.25% was as good as it gets and would repatriate as much as possible. Reducing the rate to 0% might have brought home a l;ittle more, but likely not much more.

Interesting. Where in HR25 does it say that? Thanks!

When the Fair Tax is passed there will be no penalty or tax on any corporations off shore funds.

You’re right about amount of un-repatriated earnings. There’s more like $15 Trillion in dollar denominated accounts avoiding the 35% tax. $13 Trillion is an old number. Also, there is no amnesty. It’s not needed, since the income tax ends on December 31st and the FairTax takes over the next day – January 1st. As shown above, when the FairTax is enacted and corporate taxes are reduced to 0.0%, repatriated earnings will flow back to the U.S. by the buckets full!
And, as required by HR 25/S 13, the IRS is then in business to do only two things: 1.) reconcile and collect over the next two years and nine months (gov’t fiscal years) the income taxes due through December 31st, and 2.) destroy all income tax records excluding only Social Security and Medicare taxes. For the years prior to the FairTax going into effect, “contributions” of present payroll tax payers into the system will need to be maintained to prove eligibility for SS and MC. Finally, at 2-years and 9-months after the FairTax goes into effect, the IRS is defunded.

God help us!

Let me add that nowhere in HR25 is there any mention of amnesty, yet Fairtax advocates continue to claim that $13 trillion will come rushing home. Utter nonsense in my opinion. There isn’t $13 trillion out there, and the IRS will be in business for three years after passage of HR25, so who wants to stick their head in that noose???

Just a note on what a free society means to me.

It means to me what it meant to the Framers, a government of limited powers, “few and defined”, as James Madison said in the Federalist.

Further, it means no income tax period. The Fifth Amendment clearly and unquestionably says: Nor shall any person be compelled by government to be a witness against himself in any criminal case. To allow the IT, this absolute prohibition against government was trampled upon, falsely and unconstitutionally, by the Supreme Court.

The income tax requires the federal government to compel testimony (a tax return is the written testimony of the filer) that it can, and regularly and routinely does use against the filer in any criminal case, both tax and non-tax cases. This alone destroys liberty by giving unlimited power to the government.

There is no simplified IT, and no constitutional government so long as compelled testimony of the tax return is required.

Thanks, Phelbers

The VAT has multiple levels of payment, collection, and record-keeping, admirable to big government advocates, unattractive to the good government maxim “that which governs best governs least”.

The VAT is ultimately paid by the final consumer, exactly as would be a legitimate FairTax. The general thought is that it is easier to for the government to collect because no upstream buyer would dare deal with someone who could not prove that they had paid their portion of the VAT from their added value to the product. This same principle can apply to a legitimate FT.

In essence, the VAT overcomplicates the excise tax principle of indirect taxation. Again, the gasoline tax is the best example of these taxes. The tax is levied, and made liable to the refiner or wholesaler at an early place in the life of the product. The tax is then passed along to the ultimate consumer, you and I, when we fill our tanks.

The same manifold documentation that certify the repeated VAT payments can as readily certify a legitimate Fair Tax payment just once an an early stage. This would require only a few thousand such verifications in our economy, rather than 200 million such audits for every product sale upon the ultimate buyers legally and lawfully liable until proving FT payment with a receipt.

With regard to multiple tax schemes, these again multiply the size and need for far greater numbers of government tax agents.

The degree of liberty and the size of government, and its need to interfere with our lives, are inversely proportional, particularly with respect to taxation.

Simply because so many nations use the VAT – always in addition to income, and usually many other tax plans – does not mean having multiple taxing schemes is a wonderful goal (except to those in or associated with government desiring maximum expansion of governmental power and authority).

Keeping it simple is what we ought to try.

Thanks, Phelbers

While, in general, I agree with your final comment, it is entirely inappropriate in this case because I was not insulting you (and have been trying very hard not to). I suggest to you that gross exaggeration and deliberate misstating of your opponents claims also undermines credibility and that oft-repeated lies never become real truth (although the lie may eventually be “believed” when repeated over a long period of time).

I will no longer respond to the rest of your words and ask that you kindly do the same.

We did indeed thrive with indirect taxation. In fact, in the late 1800′s the treasury was bursting with surpluses. Contrast this to the present hopelessly unplayable debt with direct taxation.

Benjamin Franklin’s quote is a direct reference to direct taxation. Those wishing to take from others by direct government force would vote for direct taxation, and have the federal government put its hand in others pockets for their benefit.

I have given several links and quotes on direct and capitation taxes for you to check out. It might be a good idea to do so before choosing such failed means for this country.

The Framers knew that the tyranny of direct taxation might be needed in very rare instances, but only to save the nation in time of declared war. To make it all but impossible, they put apportionment in place. John Adams and his Federalist allies tried a direct tax in 1798, autenssibly because war with France was a possibility. But, the tax was not necessary, and it’s odious nature resulted in only one or two other attempts – all failures.

Thanks, Phelbers

It’s OK for you to insult me and attack me personally. That is called the fallacy of ‘ad hominem’ attack, which is Latin for “to or against the person” rather than against the argument, when not able to defeat the argument.