The Fair Tax. The Time Has Come

I thought I would talk about something a bit different today than the usual rantings of retail dysfunction. Something that I believe will have huge impact on all types of retail,every tax payer, and that would be the The FAIR TAX.

If you are not familiar with the Fair Tax, let me take this opportunity to tell you a bit about the Fair Tax, along with the why and how I think it will impact all things retail. Not to mention your pocketbook.

First let's look at the overall premise of the Fair Tax, which is in essence a proposal to replace all federal withholding taxes on income with a national 23% sales tax. No more social security, medi-care,or INCOME TAXES are taken out of your paycheck. The federal government collects taxes with a national 23% sales tax. Not only for individuals, but for corporations as well. Now before you go and say that there is just no way I can afford to pay a 23% sales tax on top of what I pay today, just take a breath and let me explain a bit further. And remember with the Fair Tax, you bring home all of your paycheck.

Before we get into the meat and potatoes of the actual workings of the Fair Tax and what its passage means for you and me you have to stop and think about how the current tax system impacts the retail selling price of every single item or service that you purchase today. Understanding that the current tax system has a direct impact on every purchase you make is the key to understanding the beauty of the Fair Tax.

The reason that the current income tax system impacts your every purchase is because each and every for profit company in existence passes their tax bill directly to you. That's right,every company out there that performs a service, manufactures a product, grows and apple, or sells you a TV passes every single penny of taxes they pay directly to you through the selling price of their goods or services. Why? Because their tax burden is part of their overhead expense and the profit margin they sell their goods for is developed to not only cover their overhead, but return profit. A dollar spent on taxes is no different than a dollar spent on labor, or raw materials. If companies want to stay in business, they have to pass on the taxes they pay directly to whomever buys their products or uses their services. If you have ever worked in the corporate world, you know this is true.

Now that you see how all corporate taxes are passed on to each consumer through current retails, what do you think would happen if all of those taxes went away? Well, the best way to think about this is that every link in the distribution chain, from the original producer, to transportation, to packaging, to distribution, to retailing the final product realizes an overhead savings that will be passed on through the distribution chain directly to you, the final consumer! That is where the 23% figure for the sales tax comes in. All of the research done by the Fair Tax Group has shown that on average 23% of the selling price of most goods and services reflect the tax burden associated with getting that item, or service to you, the final consumer. Now what this means to you is that an item that retails for about a buck today would retail for about the same after the Fair Tax is instituted.

Let's say you spend $50.00 on a new shirt today. According to the Fair Tax group, 23% or $11.50 of that retail price is caused by all of the tax burden from all of the companies that had anything to do with getting that shirt to retail. So the actual retail selling price of that shirt after the Fair Tax should be around $38.55 and when you add the $11.50 in taxes back to the new retail you have a shirt that is still costs you around $50.00 to purchase after all your federal taxes are paid. I suggest you go to www.faritax.org and read all the research that proves these tax implications.

I know what you must be thinking; retailers will just keep the extra profit for themselves and I'll be paying $61.50 for that shirt! Well, give me a break. The beauty of our economic system of capitalism is that it thrives of competition. I can name five companies that will reduce retails appropriately for every one that someone thinks will keep retails high. Retailers will be forced by competition to lower retails.

A huge key to the Fair Tax is that every service and new retail item is taxed exactly the same rate of 23%. No exemptions. EVERYONE IS TREATED THE SAME. Say good by to the power of tax lobbyists and tax special interests. Not only that but the IRS will go away as well.

Key Points To The Fair Tax:

• Pre-Bates. To help offset the impact of the necessities of life such as food, clothing, shelter, and medical care costs the Fair Tax includes something called a PRE-BATE. The pre-bate is paid to each and every family regardless of income. Its calculation if based on the number of people in a household and the official poverty rate. I believe that for a family of three, the pre-bate is in the neighborhood of around $400.oo per month. So if you are family of three the pre-pate is like a TEN PERCENT raise on top of fact you bring home your entire paycheck less any state taxes.
• Only new items are taxed at the 23% rate. All used or pre-owned items are exempt. Those taxes have already been paid; right?
• The Fair Tax is progressive: Today many of the super rich do not pay income taxes. They live on accumulated or inherited wealth. Meaning that at the most they pay 15% on capital gains, but they don't pay income taxes like you and I. What will the Fair Tax change about that? Well let's say that Paris Hilton wants to go out and buy a brand new Bentley for $150,000. When she does she just paid $34,500 in TAXES. Every new pair of $500.00 shoes is another $115.00 in taxes! That $1,000.00 dress, that's right $230.00 in taxes.
  
• The Fair Tax Taps The Underground Economy: Think about this. There are upwards of 20,000,000 illegal aliens in our country. How many of them do you think pay income taxes? Well each and everyone of them will with the Fair Tax. Every time they buy food at the grocery store they will pay taxes just like you and I. What about drug dealers, or any other type of criminal that lives on unreported income. Every time they spend a dollar on a new car, clothes, a huge mansion, or food, they pay their taxes.
  
• The Fair Tax Will Boost Our Economy: If you owned a corporation, where would you headquarter it? Where the tax laws are simple, or complex? If you had 15%, 20%, or 35% more money in your pocket to spend, would you? What do you think that would do to our economy? If you invest in a 401k, can you day DOW 20,000?

Gripes About The Fair Tax That Hold No Water:

• If new items have the sales tax and pre-owned don't, what will that do the sales of new items like new homes? NOTHING. You have to remember that a new home will cost about the same after the Fair Tax and it did before the Fair Tax and there is no tax on pre-owned homes. It's just a fact so sorry Mr. Romney, your objection to the Fair Tax holds no water.
  
• What about exemptions, or managing the collection of the sales tax? How will that get done? First there are no exemptions, and sales taxes are collected and paid every day today. So sorry Mr. Giuliani, your objections to the Fair Tax hold no water either.
  
• The Fair Tax is Unfair to the Poor! Give me a break, everyone gets the Fair Tax pre-bate, you take home your entire paycheck, the rich pay taxes they never paid before, and retails don't go up with the Fair Tax. Come again on how this is unfair to the poor?
  
• How is the government going to manage all these pre-bates? They manage sending out social security and other entitlement checks on a monthly basis.
  

I hope you take the time to research the Fair Tax at www.fairtax.org, and read the Fair Tax Book by Neal Boortz and John Linder. After you have seen the light, I urge you to call your Congressman, and Senator to find out where they stand on the Fair Tax. This could very well be one of the greatest changes our country experiences.