Tax the Corporations Directly and the People Indirectly

[Keith Broaders]

INDIVIDUAL INCOME TAX RATES

CORPORATE INCOME TAX RATES

Taxing income is and always has been unconstitutional. Individuals have God given rights that include the right to life, liberty and property. When a person trades his labor for another man's money is not income. Income is the profit that one earns from corporate activity.

Corporations do not have rights because they are legal fictions created by governments. The do not have rights, they have privileges. I think that Congress should stop taxing the people and should increase the tax rates on corporations to over 50%. This would motivate many of the owners of corporations to become sole proprietorships.

Sole proprietorships would have a substantial advantage over corporations and would make it very difficult for the corporations to compete. One of the main functions of the Federal government is to protect the individual's lives, liberty and property from the abuse of power by corporations.

Giving a corporation a tax deduction for bribing Congressmen is a stupid idea. Corporation can't vote and they should not be allowed to donate money to elect candidates. Only individuals have rights and corporation have their power diminished.

A Corporate CEO should be taxed at the same rate as the corporations that employ them. Employees of corporations would also be subject to income tax because the money they receive is derived from corporate activity. Individuals that are not employees of corporations would not pay income tax while corporate employees would be subject to the income tax.

[John Gaver]

Simon, you hit the nail on the head with your first paragraph (and thanks for providing a link to an authoritative source).

However, a flat income tax won't come close to fixing the problem, for several reasons.

First, the IRS is the biggest problem and even if you fill out your tax return on a postcard, there will still be an IRS to make sure that you reported all of your income on that postcard. Furthermore, this type of return will make audits easier for the IRS. Currently, it takes the IRS weeks or even months in real time and even more in man hours) to audit a billionaire. It takes days or weeks to audit a millionaire. Under a flat income tax, those audits would take an hour or two of man hours. What do you think the IRS would do with all that spare time and idle manpower? They certainly wouldn't say, "Cut our budget and let us lay off some people." They would audit more people. If it takes a week to audit a millionaire today, that's probably 60 to 100 man hours. But let's say that only one person is working on it, so that would be 40 man hours. Under a flat income tax, they only look for income - no deductions, exclusions, trusts, foundations or where the money resides. They only look how much was earned. So that will take maybe an hour. That will give them time to audit 39 more people in the time it now takes to audit one millionaire. Of course, each billionaire that is audited would mean even more spare time for the IRS. We're talking hundreds or in some cases, thousands of man hours. There is no doubt that if we go to a flat income tax, many, many more people will be audited each year.

Also, history shows us that a flat or near flat income tax won't stay flat for long. That's how our current system started out. Furthermore, Reagan got us down to just two brackets (15% and 28%). But Daddy Bush didn't waste any time making taxes more progressive. History shows that it is a truism that a flat income tax won't stay flat.

But the most damaging thing about a flat income tax is that it will be used as an excuse to not implement real, comprehensive tax reform. It's a fall-back position for the tax and spend crowd. To take the pressure off of them to implement comprehensive tax reform, they implement a flat income tax. Then, if any member of Congress brings up comprehensive tax reform, he will be belittled for not wanting to "give the flat income tax time to work," thus taking the steam out of comprehensive tax reform. A few years later, when they start implementing more brackets and deductions again, they will claim that they are doing nothing more than tweaking the flat tax, to make it work better. A short time after that, we'll be back to where we are today, or even worse and by that the time, current drive for comprehensive tax reform will have stalled, while waiting to "give the flat income tax a chance."

The FairTax completely dismantles the current system, abolishes the IRS, destroys all personal information not directly related to Social Security calculations and replaces it with a single rate sales tax that unlike the income tax, eliminates for the first time, all tax on the cost of living (expenditures or income). To return to an income tax would require starting over from scratch and after people see the difference, they would rout any congressman who dared propose going back to an income tax - flat or otherwise. It would take scores of years for Congress to re-implement an income tax, if ever, since the FairTax requires the repeal of the 16th Amendment in seven years or it reverts to the current system, albeit without the decades of old personal tax data that was destroyed. Freedom from the IRS would have the public demanding repeal of the 16th Amendment before that time. Now that's comprehensive tax reform.

[Morton Thomson Jr.]

Mr. Gaver,

I totally agree; almost. There are a couple of problems with the Fair Tax too.

First, it does NOT shrink the federal government or encourage fiscal responsibility in D.C. in any way. Secondly, what's to stop the powers that be from increasing the "Fairness" (rate) of that tax too? Am I missing something?

[John Gaver]

The argument that the FairTax does not shrink government is a specious rationalization, used by the tax and spend crowd, to keep people from looking too closely at it. The fact is, there is NO tax plan that shrinks the size of government and there never will be. That's because, like a working man, income and spending are two separate and totally disconnected issues. Some working men save and invest their income, while others spend more than they earn and eventually declare bankruptcy. Since the tax and spend crowd can cite no real reason why the FairTax should not be implemented, they try to tie it to spending, since they know that everyone thinks that spending is out of control.

Interestingly, while no tax package can reduce spending, the FairTax could actually lead to less spending. That's because the rate is totally transparent. Unlike the corporate income tax and payroll tax that most people don't realize they are paying, every person sees on every sales receipt, exactly how much of his purchase goes to federal taxes. With that ever present reminder facing people, on every sales receipt, any increase in the rate would be instantly visible on those sales receipts and would certainly lead to a tax revolt. In fact, once people realize that this is how much they have been paying all along, voters may actually begin demanding a lower rate, even if it means that they will have to give up some government services.

[Morton Thomson Jr.]

Wrong John,

If that were the case, the taxes on gasoline would be shocking people right now, but its not. People only know what they see on the nightly news and they bitch when the price goes up, but they often DO NOT know when their taxes are being raised. Even when its right in their face.

[Terry Trussell]

Morton, one of the key features of Fair Tax is that taxes paid are always identified separately on the receipt, by percentage as well as amount. This is required for reporting as well as informing the public as to the cost of government. What politician or party would want to be tied to any attempt to increase the Fair Tax rate? If anything, they would want to be known for lowering the rate. When people are no longer punished for generating income, they will become more conscious of what government is costing them.

Another benefit, since only newly manufactured products are taxed, greater attention will be paid to buying used, rebuilt, and refurbished products (and houses). Better for the environment and the pocketbook.

[Morton Thomson Jr.]

Taxes to fund the "Obama-phone" are CLEARLY identified on your phone bill, but NOBODY knows that. As to your comment - "What politician or party would want to be tied to any attempt to increase the Fair Tax rate?" Are you serious? Politicians routinely lobby to RAISE taxes already in our current system, demagoging ANYONE who would "Throw Grandma off the cliff." Your wrong. When people are no longer paying direct taxes on income they will be better off, but that does not mean that they will all of a sudden be more aware of their indirect taxes. The two do not correlate.

As for purchasing decisions, People buy used today, but the value even of used products goes up when the value of the alternative goes up. Like the price of used cars skyrocketed with the inception of "Cash for Clunkers". Fueled also by the rising cost of Union-Built new cars. When a new car was $6,000, a used car was $600. Now a new car is $20,000 and a used on is $2000.

You have failed to make your point and you have failed to consider human nature in doing so. Love you Terry, but lets get real and make sure you keep referencing my work as I am posting a Daily Blog now on the CC. Look for links from me in your email. Thanx for your input. You are a wise and frugal man.

[Terry Trussell]

Okay, Morton, we may have to agree to disagree on this one, but I would like to offer for your consideration; that in order to implement a Fair Tax revenue system, there will be major shifts in our financial paradigm:

1. Once the IRS is dissolved (transformed into a simple reporting system, with a minor enforcement function) and people have a year or two of receiving their total income, I believe human nature will direct people to watch more closely what and how they spend.

2. An aggressive educational program combined with a public awareness campaign (PSYOP) can help direct people to be conscious of how money/wealth/property works and how it can impact their personal objectives

3. If we use the new tax structure to help promote the concept of personal liberty, we can expand this new sense of economic freedom to embed the value of true human freedom and the responsibility it demands.

4. The value in buying used products under the Fair tax, is not so much about frugality, rather it allows individual control over tax payment decisions.

5. Now, to address the motivation to raise the Fair Tax rate; considering the above, I take you five years down the Fair Tax road: people know the tax rate is fixed at my suggested 10% (or even revenue neutral 23%); any attempt to raise that rate will be viewed with serious contempt (unless there is widespread calamity caused by external forces).

Because people currently have payroll taxes immorally deducted from their paychecks, even though they see what they should be receiving, is proof that the government knows how difficult it would be to make people pay taxes AFTER they have had their money in their possession, which proves my point--I am not wrong.

As for your work--you are one of the most thoughtful and insightful writers of many fascinating subjects. I never fail to read your posts and feel my wealth grows with every article. You never fail to keep my interest and force me to think. Thank you for that.

[Morton Thomson Jr.]

If you say its going to be good I believe you Terry, but I'm just focused more on reducing the size, scope and power of the Federal government. Anything that calls itself a solution which does not address the overblown size of our gov. is in my view inadequate. I can be wrong you know.

[John Gaver]

Morton, before going into your points in order, I must address a common misconception that you mentioned, fostered by the tax and spend crowd, concerning the FairTax. The FairTax eliminates all indirect taxes that are in the current income tax.

The purchaser sees and pays all tax at the time of purchase. The endless chain of corporate income taxes that we pay today, that most people don't realize they are paying, goes away.

Now to address your points in order.

1)
You refer to the Obama-phone being funded on your phone bill. But not one person in a hundred understands their phone bill. Adding a single line of tax to all of the other taxes included in your phone bill, to fund Obamacare, is like adding one more voice to a choir. Most people will never notice it.

With the FairTax, you are adding the FairTax to only one other possible line of tax; that being a state sales tax in 45 states. It suddenly becomes quite noticeable.

One thing that state lawmakers have learned from the mistakes of others, is that you don't try to raise a sales tax. Every state that has successfully raised their sales tax has had several legislators lose their seats in the following election, with those losses being solidly attributed to the tax hike, and many sales-tax-hikers in so-called "safe" seats saw themselves in unusually close races.

The reason for this effect is that the single line on every sales receipt is both visible and a constant reminder of the difference. Legislators understand that raising a sales tax is a certain loss of at least 10% of their incumbent voter support. Since more than 50% of elections (primary or general) are decided by less than 10%, it becomes very difficult to get a majority of legislators to vote for a sales tax increase.

2)
As for how the FairTax works with used items, you have to consider that when there is no longer a business income tax embedded in the price of everything you buy, the market (competition) will drive prices down to the new fair market price and the FairTax will be added to that new price. When people sell a used product, the sales price will be based on the price that they paid for the new item, including the FairTax that was paid on the item. Some items will cost a little less after the FairTax and some may cost a little more. But in general, the overall cost of goods should remain about the same as it is today or be slightly lower, since all the layers of compliance costs go away under the FairTax, as well. So just as it is today, when a used item is sold, the price of that item will be based on what it would cost to buy a similar new product; though at that time, also including the FairTax, which becomes part of the cost to the buyer of the new product. Though there will be no specific calculation of tax passed on to the buyer of the used item, the ultimate effect will be that part of the FairTax paid on the new product will be passed on to the buyer of the used product. How much that will be is entirely subjective. But sellers of every used item (other than collectables that retain or increase their value over time or very old non-collectable used items that have very little value) will recover some of the FairTax that they paid when they bought the item new.

[John Gaver]

One more thing, Morton. Don't get sucked into the tax and spend crowd's spin that a tax plan can reduce spending.

There is no such thing as a tax plan that will control spending.

Taxes (income) and spending are not joined at the hip. If income and spending were connected, then we wouldn't have bankruptcies.

The FairTax is a TAX plan.

Sure, the FairTax has the potential to give voters incentive to press their members of Congress to reduce spending. But that's all. Just "potential" and "incentive". How voters deal with that is still up to them.

That said, the FairTax is the ONLY tax plan currently proposed that offers either "potential" or "incentive" to reduce spending. But nobody connected with the FairTax is trying to sell the FairTax on spending, because they know that the FairTax is a TAX plan and that taxes and spending are not in any way connected, especially where government is concerned.

Remember that regardless of the amount in taxes collected in various years, both parties have proven that if we don't give them enough taxes, they'll just keep borrowing to fund their out-of-control spending.

The only thing that will ever control government spending is a balanced budget amendment and that, incidentally, is the only way that we will ever tie spending to taxes. Until such time, taxes and spending are two different and disconnected issues.

[Terry Trussell]

John, your post is precisely on target. I have been a fan of the Fair Tax since before it even carried that name. The only argument I would make with the Fair Tax is that it is 'revenue neutral'. Being revenue neutral fails to accomplish a very big problem we have with our plethora of greedy bureaucrats. Subsequently, I offer the following: set the tax rate at a permanent 10% (if it's enough for God...) and distribute: 5% to local government (so we can watch it) 3% to state, and 2% to the federal government (to establish a tight leash on centralized government).

There are those who would argue that the feds can't operate under such a small budget, but that argument doesn't consider the amount of money in that 2%, plus, if we tie government (bureaucrats) to a percentage of our expenditures, they will legislate and regulate to assure maximum performance and productivity in our economy.

Also, others ask: "What if there's a war?" I can assure you, if we are attacked by an enemy bent on our destruction, funding from local and state treasuries will flow to support national defense. And without unbridled power to tax with reckless abandon, there will be fewer, if any, 'police actions' (Vietnam, Korea, Iraq, Afghanistan, etc.)

[John Gaver]

Terry, I agree with your idea of rates. In fact, I agree with your 10% rate. But if we are to get the FairTax or any comprehensive tax reform passed, it must be revenue neutral, at the time it is presented to Congress.

The beauty of the FairTax, as I stated earlier, is that once consumers start seeing the tax rate on every sales receipt, they will start demanding lower taxes, even it if means giving up some government programs. So what starts out revenue neutral will in all likelihood, be forced down by an informed electorate and that's what scares the tax and spend leadership of both parties. Since it is revenue neutral, they know that they can't use the argument that its rate it too low, when they have to vote on it. But they also know that its transparency will lead to lower rates being demanded by their newly informed constituents, at a later date.

The FairTax was designed, not only by economists, but by pollsters who determined what the people wanted and by experts who knew how to get bills through Congress that would lead to what they wanted. That's how the income tax got passed. It started out low and simple. But those who proposed it knew where it would lead. They probably didn't expect what it has turned out to be. But they never planned for it to stay simple and low. So we use the same tactic. It starts out revenue neutral and we let the people demand lower rates later, when they get tired of seeing 23% on their sales receipts. Turn about is "Fair" play.