Have you heard of the Fair Tax?

Whenever I mention my form of taxation, someone always ask. “Have you heard of the Fair Tax?”

Yes, I have heard of the Fair Tax. I believe it is a viable form of taxation. However it has the same flaws I see in all alternative forms of taxation and the current form of taxation. That flaw is the ability to manipulate the tax code beyond business into the personal tax level. In other words, there are two tax systems.

Let me explain. All taxes that will be paid with the Fair Tax, are paid on the retail level, not on the wholesale or secondary market. This is fine if you are creating a finished item and need to include a part that could be considered a finished product on it own. By paying this 23% inclusionary tax on the part only adds to the cost of a final item. Therefore, the business will be able to buy this item at a wholesale level. Now this is fair. The problem I have is, when a business may buy a personal use item under the guise of a business expense. The easiest example would be wholesale markets like Sam’s Club, Where a person may go to buy bulk items. If you said the purchases were for business use and had the proper paperwork, all items would be tax free. Another good example may be a vehicle. If you own a business, you may be able to purchase a vehicle without paying this tax. And the only business use for this vehicle may have, would be getting you from home to work and back. This is not much different a use than the normal salaried or wage based employee. This creates an animosity between the wage holder and business owner. Class warfare though exaggerated, is not completely groundless. There are true disparities that can be exploited to create this animosity among the classes. Too ignore this, is to ignore the truth. People will manipulate the tax code to serve their own personal needs. That is why I am advocating for a tax that has no exclusions or levels. Whatever the tax is, that is what you pay. No maximum, minimums, exclusions, or manipulations.  

I have the same argument for the Non-Profit organizations. I agree that non-profit charitable organizations, that are serving the community deserve the tax advantages afforded with this system. The problem comes in the issuance of non-profit status for political and private organizations that are solely created for the purposes of issue advocacy. Or the purchasing of influence. The problem is how do you distinguish between an altruistic organization and one developed for the purposes of laundering money, purchasing influence or created for a self interested individual.  The short answer is you can't without extensive investigations. So why have a system that can reward self interest.

Every time the politicians develop campaign finance reform. It just seems to funnel all the political funds into a more convoluted pipeline controlled by those currently in power. I think if you wish to give a politician a million dollars to run for an office. It is your business. All I want is transparency and not to subsidize it with tax dollars. If an organization or group supports a candidate than I should know the amount they wish to donate. This should happen without subsidizing the transaction with a tax write-off. You can not identify cronyism without a clear money trail. All the current system does is hide the transactions in a labyrinth of different groups. If there is no political influence in the tax code and non-profit organizations, than explain Solyndra, Blackwater, and CGI Federal, just to name a few. The list is endless of groups that donated heavily to politicians for the purpose of Grants, Loans, Contracts, Protection, and other Crony Capital Ventures. In essence, Influence is a commodity. So, why should the taxpayers subsidize a commodity through tax exemptions.

Either Rush Limbaugh or another talk show host said something this week that I have believed for years. To paraphrase. ‘In Capitalism, building personal wealth brings power. In Socialism, building power brings personal wealth.’

These are undeniable truths. That is why I developed my idea. I see it as both. This war will always rage on between the benefits of Capitalism over the benefits of Socialism, and the rich and the poor will always be with us. In all things there must be a balancing point. I seek the balance of individualism. This balance is usually observed in a healthy vibrant middle class. The CUT Tax(Currency Use Tax)  treats all individuals and organizations the same. There are no distinctions between taxable income and taxable revenue. Therefore the government can not favor or penalize people or organizations based on beliefs, products, or political affiliation. However, only if it was instituted into a pure form with no carve outs, minimums, and progressive rates.

Many people believe in the Fair Tax because they have the illusion that this is an end user tax. To me there is no true end user tax. All taxes are handed down as expenses. If 50% of the cost of an item is labor. Than any end user tax is just incorporated into the cost that labor. If you need 25% of your income to pay a tax, you will figure this expense into what you are willing to work for. The only true end user tax is slavery, where you have no choice in the amount of compensation you receive. Then the slave bears the brunt of the tax, and is the end user.

My other objection is the inclusionary structure of the Fair Tax. That being the tax is figured into the final price of the item, prior to purchase. This makes the true rate murky and hidden. I would prefer to have it figured just like most states figure sale tax. The amount is added on at the point of sale.

My third objection is the pre-bate. The idea of the pre-bate is that every month a legal citizen or family would receive a portion of the estimated tax that would be paid on purchase of necessary items. To me this is just another buy out to make it look like the tax does not affect the poor. If this is the way a tax should be handled than, level the tax as is, and don’t play the handout games to make it appear functional. All this does is elevate the rates on those that do actually pay the tax.

My fourth objection is, this still does not solve deficit spending in Washington. If they don’t get enough revenue, they will spend it anyway. The Fair Tax will not even give us a budget. The CUT Tax may not stop them from spending money. However, if instituted properly it could give real political pressure for maintaining a budget, and holding them accountable for the numbers within their budget.

The real problem I see is that they have handed away all their responsibilities to Baseline Budgeting, Continuing Resolutions, and  Bureaucratic Agencies. This country is running on autopilot, and no one in power is paying attention. If it crashes they will just blame each other. And that is fine for them. But it sure as hell don’t help the average person. Meanwhile we are stuck looking out of the cockpit, as the approaching mountain get bigger and bigger. Even if we miss the mountain, our children will still have to figure out how to keep the plane in the air. After all, without proper planning, we will run out of fuel sometime.

In conclusion, all taxes are avoidable, including my idea. The more complex, the easier to manipulate the system. That is why for full compliance you must make the tax convenient, safe, and competitive. The only way to ensure adequate compliance is to make one that is relatively low and applies to everyone. In the wireless global community we live in, people will search for a convenient, safe, cheap, and stable home to store their excess wealth. Why not make it the United States of America. I would like to see us become the 'tax haven' for the world. That is one of the good points on the Fair Tax. However, that only works for us with a healthy dollar. After all inflation is just an unintended tax on wealth. You can have a zero tax on wealth. But,this is meaningless if you have double digit inflation.