It is good that alternative tax systems are being discussed. An even better alternative than what Robert Frank suggests in his 11/8 article is called the FairTax which is already a bill that has been introduced in congress.

The key to raising prosperity in our nation is to attract business and jobs back to our lands – not through altering free markets via personal and corporate welfare. Business and jobs are attracted by creating an environment that allows businesses to offer U.S.-made products and services to end consumers at globally competitive prices. So what would have the greatest impact on costs that get priced into domestically produced goods and services?

-          Payroll Taxes (Social Security and Medicare) raise costs to companies who employ workers.

-          Corporate Taxes must be priced into products/services when seeking after-tax profits.

-          Tax compliance (Corp, Payroll, Employee Personal withholdings, etc.) is also a cost that every U.S. business must bear (and price into end products).

Ultimately, end consumers bear the burden of corporate and payroll taxes as well as tax compliance. 

One of the biggest sleight-of-hand tricks is to suggest that raising corporate taxes is somehow compassionate to workers and the middle class. Raise taxes on oil companies for instance and we all know what happens to the price of gas at the pump. Corporations don’t pay taxes. They just pass them on to the consumer.

Some of our nation’s top economists have determined that without Payroll and Corporate taxes, the average price of U.S.-made goods and services could come down by 22%.

Consider this for a moment… 

If U.S.-made goods and services could be offered to end consumers (domestically and abroad) for 22% less, would our products compete better globally? It doesn’t take an economist to figure this one out. 

Once we level the playing field some, domestically we can add the tax back at the point-of-sale which applies to both U.S.-made and imported products alike.

From a “keeping jobs in America” you can’t beat the FairTax!   More jobs = more prosperity = more disposable income = more consumption = more revenues to our federal government. Rather than have a vicious downward cycle, we reverse current trends and go up for a change!

Considering also that the FairTax invites $12+ trillion to repatriate back to our lands by completely eliminating Capital Gains and Estate Taxes, the timeline for investment in the U.S.A. would be months… not years!

There are many other key benefits to the FairTax that are worth mentioning. Here are a few.

1.       Income earners will receive 100% of their gross earnings (assuming States follow suit by eliminating personal income tax obligations).

2.       All consumption taxes paid on consumption at or below the poverty-level are untaxed via the monthly prebate provision.

3.       Spreads the tax burden among all who consume within our lands – not just those of us who file tax returns.

4.       Liberates households and (many businesses) from having to file income tax returns

In Summary, by replacing the Income Tax, Corporate Tax, Payroll Tax, Capital Gains Tax, and Estate Tax with the FairTax (national retail sales tax) we will attract business, investment, jobs, and prosperity back to our lands and create prosperity for all.

For more information please visit www.fairtax.org.

I was going to write a blog post titled “The Grasshopper, The Ant, and the Gov’t Bailout” but decided to search the internet first… It seems that someone beat me to it two days ago (although spun a bit differently)…

http://www.cnsnews.com/public/content/article.aspx?RsrcID=36377

I would add to Michelle’s story that our servants in Washington (you know... those crooks on both sides of the isle who put special interests and personal gain ahead of the interest of We the People) have chased most manufacturing away from our lands so grasshoppers and ants alike have a tougher time finding jobs in any industry other than financial services. Hmmm, what industry exactly is our economic meltdown stemming from? What exactly does the financial services industry do? Tax compliance, estate planning, insurance, investments, etc. So, insurance people buy estate planning from estate planners… estate planners engage tax attorneys and CPAs.. CPAs buy insurance…  and somehow wealth is created so we can afford imported physical goods that end up on shelves of our departments and superstores? Can you say massive trade imbalance (house of cards)?

People must come to the realization that when government panders... it is time to get wise and run away.  Government free lunches fall on the shoulders on a smaller and smaller base of tax-payers...  Yes, I am talking about the evil rich and evil corporations. 

Think about it...  When we tax the evil corporation another 5-10% (from 35% to 40 or 45%) one or more of the following happens:

1.  We cause higher costs (taxes) to be priced into the products and services that we consume. Raise the taxes on oil companies and tell me that it won’t show up at the pump.  So, who pays for higher corporate taxes?  WE DO!  Nice smoke and mirrors though...  Get the masses to believe that Washington is looking after us when Washington is really stabbing us in the back!

2.  We chase corporations (and jobs and prosperity) away from our lands to tax-friendly countries like Irland where corporate tax is 12%.  How else are they to compete with cheap imports?

3.  We cause corporations who remain to die on the vine because they simply cannot compete.

What we need more than anything is to build prosperity throughout our lands. We need to remove barriers for business within our lands. We need to plug the leaks (wasted $$ on tax compliance and unnecessary business regulation) and stop punishing producers within our lands. We also need to stop making it so darn cozy for non-producers who suck the life out of our economic engine!

Our tax system is a great place to start!

The FairTax (www.fairtax.org) make the U.S. a tax haven and invite $12-trillion back to our lands to invest which would create jobs and prosperity.  These jobs, where workers would actually produce something vs. simply help in regulatory compliance), could then create wealth which would be reinvested in our nation and bring about the greatest period of prosperity our nation has ever seen.

What happened to American Innovation and Competitiveness? 

In short, it has been stifled by American government.

It used to be that hard work enabled families to put food on the table and, with a little ingenuity created financial security for business owners and their employees. It used to be that if an employee were unhappy with his compensation or working environment that he/she would seek out other employment or venture out on his/her own. It used to be that one someone lost his job due to his company being downsized or due to his job being automated that there was opportunity elsewhere (that may or may not required a little training).  The Great Depression was an exception but I would argue that government altering of free markets (and corruption in Washington and on Wall Street) contributed to the 1929 collapse.

What happened over the last 100 years?

Government got too involved...

Fact: When two parties (buyer/seller, employer/employee, etc.) deal directly with each-other without intervention, we have the greatest efficiencies. 

Fact: Free-market middleman add value and add to efficiency by expanding markets. 

But where does government fit in? The best answer is it should fit in as unobtrusively as possible. But that’s not what we have right now. Right now we have a middleman that provides little to no value (and in many cases negative value). Right now we have the following:

1.       Employers burdened with income tax collection for government

2.       Employers burdened with matching payroll tax obligations as well as payroll tax collection for government

3.       Some companies burdened with sales tax collection for government

4.       The burden of health care has been largely shifted to employers

5.       An insurance middleman is forced down employers throats (workers compensation, disability, unemployment)

6.       Companies get punished when downsizing by having their unemployment ratings raised (this causes companies to think twice when considering new hires to take on new business)

7.       Companies are burdened with fear of legal action when firing employees

Okay, many may say that in a civilized society that we should have all of these regulations in place. Okay but at what cost? Wouldn’t you rather have a prosperous nation with plenty of productive jobs (i.e. not government jobs) for our workforce? I say there is a better way.

I trust the free market infinitely more than government regulation. Unfortunately, there is much to undo that our government has messed up since opportunity, jobs, and prosperity have been chased away from our lands. The key changing the business climate such that opportunity, jobs, and prosperity are attracted back to our lands.

So what changes could we make in the immediate and near term?

1.       The FairTax would eliminate the burden of companies collecting income and payroll taxes on salaries and wages. Companies would, instead, collect sales taxes on new goods and services sold to end-consumers. This massive reform makes the U.S. a tax haven and invites trillions of dollars back for investment in our lands which creates more opportunity, more jobs, and more prosperity. By untaxing production, our goods/services immediately become more competitive with imports as well as on the global market!

2.       Allow trade associations or other groups (unions?) to offer group healthcare if that reduces rates beyond what individuals can find independently. With the FairTax, there is no longer a tax advantage to running healthcare through the employer which takes the burden of administration off the employer (a good thing). 

3.       Don’t favor big business over small business! Do away with the special favors (generally in the current tax code) that big business lobbyists obtain for their big business clients in exchange for campaign contributions. Allow all business to compete on a level playing field (the FairTax does much to level the playing field). When companies are run badly, allow them to fail. When their product or services becomes obsolete, allow them to fail. A free market will see innovation and efficiency replace obsolescence and inefficiency. Simply allow the natural creation/destruction cycle to occur with businesses.

4.       As opportunity, jobs, and prosperity come back to our lands, phase out unemployment benefits. Why burden companies and society by making it so darn cozy for people to be without a job? Doesn’t that create a drag on the economy? Isn’t that fire under the seat of an unemployed person a good thing? I say this has to be phased in because the government must allow opportunity/jobs to come back naturally after implementing the FairTax.

5.       Level the playing field with regard to the legal system. Make losing parties to frivolous lawsuits pay legal fees to the winning party. This will stop opportunistic trial lawyers from suing business with little to no risk of damages when they lose. 

Remember, the key is opportunity, jobs, and prosperity. If we stop punishing productivity, investment, agility in our lands we will regain our proper place as the most prosperous nation on earth.

Cheers,

In this essay I will give my thoughts on how:

1. 1.      The U.S. tax system puts U.S. companies at a disadvantage vs. international competition
2. 2.      Many other countries have tax policy that actually creates an advantage for their business.
3. 3.      What we can do about it.

Tax rates around the world is a page on Wikipedia.org.

It appears that the United States is the only country with payroll taxes (Social Security + Medicare) though I do see that the UK has a National Insurance Tax which appears to be similar. U.S. Payroll taxes cause U.S. workforce costs to be ~7.65% higher than most international competition. Multiply that 7.65% on salaries/wages across all business functions (both internal and supplied) in order to get a product produced, marketed, distributed, and out to end consumers and it is not difficult to see how higher costs creep into the end pricing to consumers.

In addition, U.S. Corporate Tax is among the highest in the world – up to 39%. We all know that corporate taxes are simply passed along to consumers, right? So while Washington may seem like they are playing good guys by taxing the evil corporations, you and I are paying for it either (a) at the register or (b) through loss of jobs to international competition.

As an example, a U.S. company that manufactures widgets has $100 million in gross wages/salaries which results in employer-side payroll taxes of approximately $7.5 million. If it has cost-of-goods sold and other costs (raw materials, plant & equipment, etc.) of $72.5 million for total costs of $180 million and then sold its widgets to a U.S. distributor for $200 million and makes $20 million it must hand over one third to the government which leaves about $13 million in profit.

Now let’s move the manufacturing to Ireland and assume that relative wages/salaries are similar.
Does Ireland have payroll taxes? No. That’s a $7.5 million savings. 
Ireland’s corporate tax is 12.5%. 

If the Irish company charged the same $200 million for its widgets and had similar raw materials and operating costs ($72.5 million) it would stand to profit about $28.5 million before corporate taxes of about $3.6 million which would leave nearly $25 million in after-tax profit.

Let’s say that the Irish company wants to be more competitive than the U.S. company. It could charge $10 million less than the U.S. manufacturer and still make greater profit. So the Irish company wins the business, the American consumer gets a less expensive Irish product, but the U.S. manufacturing struggles and eventually either closes or relocates. Either way the jobs are no longer American Jobs.

So how would this manufacturing example unfold with the FairTax?

The U.S. workforce costs would come to $100 million even (not $107.5 million)
Other before-tax costs remain constant at $72.5 million
There is no Corporate Tax so in order to make $13 million in profit our company would charge $179.5 million.

To recap, in order to get $13 million in after-tax profit:

1. 1.      Before the FairTax our U.S. company must charge $200 million
2. 2.      The Irish company could charge slightly less than $190 million
3. 3.      After the FairTax our U.S. company could charge $179.5 million

Ever hear of the tremendous trade deficit that our county runs? Well, if we take this newfound competitiveness under the FairTax system and apply it to U.S. exports exports as well, we will see a rapid reversal of the trade imbalance and have even greater prosperity in our lands.