Welcome to "Article 7"...(the written version!)
Please Note: Until now, the Independence Caucus has posted the video version of each Article as soon as the Video Presentation of each article is completed.
However, as of 8/12/08, because the backlog of your requests for more information continues to grow faster than we can produce the videos, the Steering Committee has decided to post the balance of the "12 Articles" in their original written form.
We will remove this written version and replace it with the video version as quickly as we can get it produced.
Article 7:
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Welcome back to the 12 Articles of the Independence Caucus.
This is Article 7: “ Implementing “I.R.S.” – Internal Revenue Solutions to eliminate loopholes and special treatment for “Big Money” Special Interest Groups.”
In this Article we focus on returning our nations Tax policies to their original purpose; i.e. raising revenue to fund government services; while simultaneously eliminating the systemic rewarding of Big Money campaign donors.
Note: If you haven’t read Articles 1 through 6 yet, we strongly recommend that you read those first to understand the full context of our proposals. As an absolute minimum you should have read Article 3 which outlines the specific problems we see with our existing tax codes.
Specifically, we advocate Implementing a Tax Policy that:
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* Eliminates the Favorable Tax Treatment of one group over another.
* Re-Directs the IRS with a new mission to focus MORE on monitoring how Government is spending our money, and focus LESS on monitoring how Taxpayers are earning their money.
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Keep your eye on this ball: The overriding goal of fixing our tax policies is to eliminate arbitrary favorable tax treatment of one group over another.
Remember: The 17,000 plus pages of the current U.S. Tax Code consist of endless “loopholes” that are manipulated by high-priced lobbyists for their clients and by other special interests. That’s why there are more lobbyists registered in Washington, D.C. for “taxes” than for any other issue.
Remember: Under the current tax system, the writing of “new tax code” places Congress in the role of picking economic winners and losers…(“You get a tax break, but you do not”)…and the economic winners are invariably those who contribute the most to incumbent re-election campaigns.
Remember: Every time Congress passes a new tax law or new tax rate, the only consistent and predictable result is that incumbent Congressmen will obtain fabulous campaign contributions from those who want to legally negate the intent and impact of the new tax laws.
As a result, the only consistent results of every effort to “Raise Taxes on the Rich” or to “more evenly distribute the tax burden” is a guaranteed money tree for incumbent campaign contributions, and yet another 700 pages of additional manipulative tax code.
The biggest losers ultimately are you and me, the individual taxpayers that make up the general public, because the special interests who want to buy tax exemptions collectively donate more than enough money to dwarf any influence that you and I might hope to have with our Congressmen.
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What’s the solution?
There’s only one tax system that eliminates the Favorable Tax Treatment of one group over another
That tax system would be a National Sales Tax (“NST”) with no exemptions or exclusions, plus an attached “pre-bate” feature.
Our current tax system is based on taxing production and income. In contrast, the “NST” is based on taxing consumption. This is a crucial difference that more equitably distributes the federal tax burden while simultaneously creating numerous incentives and benefits for the growth of the national economy.
Here’s what a properly implemented “NST” will do for you:
* Allows you to keep 100 % of your paycheck, pension, and Social Security payments.
* Eliminates all Personal Income Taxes, Payroll (FICA) Taxes, Corporate Taxes, Self-employment Taxes, Capital Gains Taxes, Gift Taxes, and Inheritance Taxes.
* Exempts all taxpayers from federal taxation up to the poverty level.
* Wipes out the 17,000+ page income tax code and re-directs the IRS to monitor how Government uses our money…not how Taxpayers earn their money.
* Eliminates the time wasted on filling out cumbersome IRS forms…and the need to save financial records for years.
* Ensures that all Americans pay taxes; including drug dealers and others who currently profit from crime “tax free”.
* Dramatically lowers tax rates for low-income and middle-income Americans.
* Makes taxes visible by eliminating hidden income and payroll taxes in consumer prices.
* Enables and encourages families to save more for home ownership, education, and retirement.
* Makes American products more competitive overseas and gives additional incentive for companies to set up or keep their businesses in the United States.
* MOST IMPORTANT OF ALL: With a properly implemented “NST” there would no longer be any incentive or reward for “Big Money” to continue spending millions of dollars on political campaigns trying to secure exemptions from paying taxes….because everyone would be subject to the same consumption tax rate with no exceptions and no exclusions.
Benefits of the National Sales Tax (NST):
The NST is truly progressive as it protects Low-income Americans with an “NST” Pre-bate:
To ensure that no American will pay tax on necessities, the NST-Rebate provides a prepaid, monthly rebate for every registered household to cover the NST tax spent on necessities up to the federal poverty level. This is how the NST completely exempts the poor, and lowers the tax burden on everyone else.
The NST Rebate also insures a TRULY progressive tax structure, because all workers would receive the maximum rebate.
Because the poverty level is adjusted for family size, families with children would receive a larger rebate than childless households. This ensures that the NST plan does not impose an unfair tax burden on families with children--which tend to have higher consumption demands. We believe that such a rebate mechanism is sensible on both political and equity grounds.
The NST Rebate is designed to eliminate the complexities of having tax-free exemptions for selected items. Thus, it does not undertake the complex and politicized task of determining what items to tax and what items to exempt, thereby minimizing administrative and compliance questions and economic distortions.
Since the NST Rebate is not means tested, just the identity of the adult and his/her dependent children need be determined to avoid multiple rebate claims. It should require no more effort and less anti-fraud creativity than what's needed for distributing refunds on individual income tax returns.
The NST allows the IRS to stop focusing on how we earn our money:
However, we would propose that we NOT abolish the IRS. Instead, we would reverse its function: Instead of being a watchdog over American taxpayers, let’s give the IRS a new mission to watch and audit government agencies.
Think about that. The IRS will actually begin working to protect American taxpayers from Government corruption and misuse of our valuable tax dollars. Is there anyone of any political party that does not see the wisdom in this approach?
The NST puts the “Legal Tax Avoidance” industry out of Business:
NST gets rid of all tax loopholes and creates a fair tax that includes protections for low income Americans. With no “tax avoidance” rewards built into the system, NST eliminates the need for economically inefficient investments that are largely tax shelters, off-shore tax havens, and special-interest loopholes.
The NST stops criminals from profiting “tax free”:
The NST broadens the tax base by taxing the underground economy. Tax evasion costs U.S. taxpayers at least $200 billion a year in lost revenues. Honest taxpayers are estimated to be paying an additional 10% - 15% in taxes to make up for those who cheat the income tax system.
However, under the NST every Ferrari that a drug dealer buys would be taxed…which currently never happens.
The NST stops money from being transferred out of the country to avoid paying taxes:
Under the current tax system, when an illegal alien or migrant worker is paid cash “under the table” and transfers the money to another country (via Western Union type services), the money is earned and spent with no taxes being paid.
At the same time, when large corporations transfer funds to their off-shore entities, or engage in “Transfer Pricing” as described in Article 3, that money is earned and then spent with no taxes being paid.
Both problems are solved under the NST. When money is being transferred out of the country, the NST considers it to be “consumed” and it would be taxed as it leaves the country.
The NST encourages Savings:
Because the NST is a consumption tax, there would be no tax on savings. Every country that has increased its national savings rate has seen a corresponding increase in its standard of living.
America would become a sponge for savings, which historically results in declining interest rates. Declining interest rates reduce the prices of homes, automobiles and all other items consumers buy on credit. By ending the double taxation on savings and encouraging investment, a consumption tax would energize the U.S. economy, lift stagnant wages and create jobs.
No one knows precisely how much interest rates would fall because demand for credit would rise as well, given the increased after-tax rate of return on capital investment under an NST approach. But if the standard prediction of a 200 basis point decline in interest rates is correct, the result would be to reduce federal borrowing costs by as much as $75 billion annually.
The NST encourages U.S. Exports and would improve the balance of trade:
No product made in the USA and exported to other markets around the world would be subject to the consumption tax. If all taxes were removed from production costs, you could expect the price of American products to drop.
All imports would be subject to the consumption tax just like any other product sold in the U.S. This border-adjustability, completely legal under World Trade Organization rules, would give us a fair advantage in the global marketplace.
This improved competitiveness for U.S. exports would undoubtedly lead to a surge in U.S. exports, help our balance of trade and provide a boom to our economy
The NST would help the U.S. Become the ultimate Tax Haven:
Given the proposed tax treatment of an NST plus the political stability of the United States, this nation would become the ultimate global tax haven--to the benefit of U.S. industry, workers, and consumers.
Just imagine how many companies around the world would want to build their factories here if they could reduce their operating costs by relocating to the US. This would create a boom in the demand for American workers and thereby help raise American wages.
Expatriated U.S. investment dollars can also be expected to find their way home. In the 1980s, when top federal tax rates were reduced from 70 percent to 28 percent, the United States attracted a net inflow of roughly 500 billion dollars.
International capital flows to the United States are also likely to increase under an NST system. The complete removal of all taxation of non-consumed income would increase the attractiveness of the United States for foreign investors.
The NST leads to REDUCED pre-tax prices:
Currently when a company pay’s any taxes at all, including payroll taxes on their employees and any corporate taxes, those taxes are an expense and are added to the cost of their products and services. This means that the consumers who buy their products and services (that’s you and me) are the ones who really pay those corporate taxes.
That’s why corporate and payroll taxes are often called “Hidden taxes”…we pay them when we purchase things even though we don’t see them as taxes.
The NST plan requires vendors to separately state and charge imposed taxes, which makes all taxes VISIBLE. Consumers will see the full cost of government with every purchase, and since there are no Payroll taxes and no corporate taxes, those previously hidden and “passed along” taxes are eliminated.
Because those hidden taxes no longer exist, the pre-tax price you pay for products and services would go down.
A properly implemented NST must protect against Un-Funded Mandates for Businesses:
By definition, we would see business retailers bear the responsibility of collecting the NST at the point-of-sale.
Accordingly, business retailers should be provided with a percentage of the revenues collected and remitted to the federal government to compensate them for administration costs. One proposed rate would be a credit of 1.5 percent of total revenue collected, although the exact amount is not as important as making sure that businesses are compensated for collecting taxes for the government.
A properly implemented NST must protect against Un-Funded Mandates for States:
Because they have the most experience administering sales taxes and because of the principles of federalism, the 50 individual states would bear the primary responsibility for administering the national sales tax.
Accordingly, States should be provided with a percentage of the revenues collected and remitted to the federal government to compensate them for administration costs. One proposed rate would be a credit of 1.5 percent of total revenue collected, although the exact amount is not as important as making sure that individual states are compensated for collecting taxes for the government.
That would ensure that the NST plan does not impose an un-funded mandate on the states. Since the marginal cost to a state of collecting the federal tax in addition to its own sales tax (for which it already incurs costs) would be quite small, the 1.5 percent fee (on total revenue collected) should constitute a strong incentive to become a conforming and administering state.
The NST would be less expensive to administer:
If the Federal Government paid a rate of 1.5% for businesses and 1.5% for individual states to collect the NST, the total administrative expense would be 3% for collecting the NST.
By comparison, the costs of collecting the current income tax’s has been estimated at between 8 and 9 percent of revenue collected.
This means that the Federal Government should realize a cost savings of more than half, even after paying credits to States and Business entities, and it also means that both businesses and individual states would benefit financially while doing what they are already doing anyway: Collecting taxes.
The NST would eliminate “multiple Taxation” or “Cascading”:
Cascading refers to the repeated taxation of the same items as they are sold and resold at successive stages of production and trade. Cascading is a deficiency of many state sales taxes.
A properly implemented NST plan would avoid “cascading” to ensure the same effective tax rate across all types of property and services (horizontal equality), irrespective of the number of companies or stages of production that were necessary to bring the good or service to market (vertical equality).
To protect against "cascading" effects--imposing multiple levels of taxation on the same product--the sales tax would exempt from tax inputs at each intermediate stage of production.
Bottom line, the number of firms involved in getting a product to the consumer should be thoroughly irrelevant to how heavily the good is taxed.
A properly implemented NST must include Government Services & purchases in the Tax Base:
Under a properly implemented NST, government output and purchases would not be exempted from the sales tax.
The argument has been made that government services should not be taxed with NST, because the money collected just returns to the federal treasury where the government service originated from. In other words, it would be like taking money from your left pocket and putting it into your right pocket…with no net gain or loss.
However, failure to impose this tax on government services would constitute a dramatic incentive to consume through the medium of “tax free” government.
In other words, failure to tax government output would alter relative prices in favor of government output over private output.
For the same reason, a sales tax should also be imposed on government purchases from the private sector, so there is no incentive to consume through the medium of government versus the private sector.
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There you have it….the actual nuts and bolts of the only Tax Reform that would truly eliminate the Favorable Tax Treatment of one group over another, and the only Tax Reform that re-directs the IRS with a new mission to monitor how Government is spending our money.
Combining the NST with a “Fixed Pie Budget” that establishes independent limits on government spending, “Big Money” would no longer get rewarded for their campaign donations. Our Budget and Tax policies would return to their original function of funding government services, not special interest groups.
We will now shift our focus and take a look at the final reform needed to break the hold that special interest groups have on Congress: A renewed commitment to the Rule of Law. You’ll find this in “Article 8 – “Protecting the Border with a Line in the Sand” and you can find it at www.ourcaucus.com.
We’ll see you there!
Sincerely,
John Q. Caucus
