FairTax - Wisconsin

Merrrill Bender - December 17, 2004

A Recent letter by the House Democratic Leadership to the President calls on Democrats and Republicans to move forward now on Tax reform and Simplification. Key points in their letter point to "Fairness"; "Simplification", and "Fiscal Responsibility".

Under "Fairness", the Letter refers to the unfair nature of the Alternative Minimum Tax (AMT). The AMT is projected to grow to overwhelming 33 million American Tax payers by 2010, which is up from the 1 million in 1999. Nancy Pelosi and other Democratic leaders are calling on the President to protect the Middle Class from the overly burdensome tax code that has many families paying more than their fair share.

Their final point is that the President and the nation have to be fiscally responsible. Democratic Whip, Steny Hoyer and Democratic Caucus Chairman, Robert Menendez, write, " We must not add to the deficit; indeed, we must steadily reduce it." Their concern is that any tax reform proposal including Social Security reform should be revenue neutral, meaning that we don’t add to the national debt.

A major concern of the proposed Social Security reform is that the Private accounts that the President is advocating may cost the Treasury up to $2 Trillion dollars in lost revenue to Social Security.

Some argue that we need to go further into debt now to save Social Security in the long run. Increasing the National Debt does not seem to be a pill that the Democratic Leadership is prepared to swallow.

A bipartisan solution has been put forth by a Grassroots organization called Americans For Fair Taxation (AFT). Formed in the mid 1990’s this group has advocated a Legislative package that currently has 55 Sponsors in the House and Senate - Bill HR 25 and S1493. The AFT Legislative Package provides multiple solutions in one Progressive Tax Simplification and Tax Reform Proposal. It meets the Democratic Leadership’s Goals of Fairness,

Simplification and Revenue Neutrality. It meets the President’s and Republican Goal’s for Tax Reform and for Economic Growth. A Bipartisan solution for both sides may be found in this Legislation commonly called "The Fair Tax"

The Fair Tax package would be a wise package for Democrats to support on many levels. Key for their current blue state majorities, is that the alternatives being floated around will negatively impact many blue states. One alternative package being floated by Republicans is 5 easy steps, which includes reducing or eliminating taxes on dividends and capital gains. To pay for it the President is considering eliminating the deductibility of State and local taxes from Federal tax returns. This weighs more heavily on blue states like New York and California who rely heavily on property taxes to fund state and local government. Some Republican circles believe this will be easier to pass than large-scale tax reform and simplification. Democrats are wise to call for a Tax Simplification package that won’t unfairly impact blue states more than red states.

According to the Fair Tax web site, The Fair Tax Legislative Package has been well researched, and studied by well-known economists at Harvard, MIT and Stanford. The Fair Tax eliminates Corporate and business income taxes, personal income taxes and the payroll tax, replaces it with a National Sales Tax and provides a prebate to American families of the sales tax paid on necessities up to the poverty line. The Legislation is revenue neutral and well documented in the research section of their web site. With the Fair Tax package you still fund all of the Government, including Social Security and Medicare. However, by broadening the tax base, you lower the effective tax rate for everyone.

By eliminating the payroll tax, you eliminate the most regressive tax on the poor and middle class. The Fair Tax allows American workers to take home 100% of their paychecks - free of federal withholdings. The Prebate to a family of 4 is $479/month, paid out at the beginning of the month just like Social Security checks.

The added advantage of the Fair Tax Legislation is that it is much more than just a National Sales Tax. Critics of the Fair Tax Legislation are not reading the whole package or often have a partisan agenda. The Fair Tax is progressive and fair. Net effective tax rate for the Poor is 0%, for the middle class 12 to 13% and for the wealthy 20 to 23%. This makes it a progressive and fair tax according to supporters. Progressivity is a feature, the Democratic Leadership should be able to support and most probably would demand.

American workers can’t compete with low wage countries nor do we want to. However, we can fight back with lower taxation on our exported goods. The Fair Tax package will increase demand for made in America products because of price. A drop in export prices of 22 to 25 % will have an amazing impact on our trade deficit and our economic growth while resulting in increased revenue to the Treasury to pay down the National Debt and protect Social Security for the long term. Democrats and Republicans will also have to keep spending under control.

In this one political package there are multiple solutions to economic concerns raised by the Democratic leadership and by the President’s 2- day economic summit.

Average American families will have more to spend under the Fair Tax Legislation. In fact, an average American family of 4 making $50,000 a year will have $7500 more to spend under the Fair Tax Package. Fair Tax supporters have an interesting Calculator in excel format that shows families how much more purchasing power they will have under the Fair Tax Legislative Package.

That $7500 per family is the answer to Social Security reform and private retirement accounts. Not a tax incentive or a tax break you receive weeks after you file a complicated tax return but more of the family’s own money taken home each month to spend or save as they choose. They can put $1,000 a year into retirement fund and have $6500 left over for a Health Insurance policy or they can pay for quality childcare for their young children and save for a down payment on their first home or any number of combinations of family needs, but they decide. The key is it doesn’t cost the government in lost revenue and thereby increase the national debt. It is not a $2 trillion dollars price tag that needs to be borrowed or provided for by eliminating deductibility of State and local taxes.

The Fair Tax Supporters are eager to share how their bipartisan package is revenue neutral for the US treasury and provides multiple solutions to the country’s economic and tax concerns in one political package that both parties can support. Supporters believe it is "Family Friendly Tax Reform" whose time has come.

With the Open Letter to the President by the Democratic Leadership perhaps they may work together and really get something major accomplished instead of tinkering around the edges of the tax code and its thousands of pages.

For more information get the facts at

http://www.fairtaxvolunteer.org/smart/faq.html

Merrill Bender

Barker, NY

716-795-3875