Greenspan is right - it is time to bury the old code and go to a national sales tax. 

Greenspan's Solution Equals the Fair Tax

Federal Reserve Chairman, Alan Greenspan moved the tax reform debate ten steps forward on Thursday when he spoke to the President’s Tax Reform Panel. Greenspan said, that the tax system should be simplified, perhaps with some kind of consumption tax, to encourage national economic growth and personal savings.

This was welcome news to Congressman John Linder of Georgia, who along with Senator Saxby Chambliss are sponsors of a Legislative package that provides all of the benefits that Greenspan mentioned in a consumption tax and also answers all of his concerns for replacing the income tax completely with a National Sales tax. The Legislative package HR 25/ S25 is based on the research done by Americans for Fair Taxation (www.fairtax.org). The Fair Tax has several key components all of which have been well researched and documented in the research section of their web site. Greenspan is always cryptic in his testimony but for those that know the facts see Chairman Greenspan’s solution pointing directly to the Fair Tax.

The Fair Tax Legislative package was originally introduced in the 106th Congress by Congressmen Linder and Collin Peterson (MN 07), Linder has been working tirelessly gathering support for his legislation. In the 108th Congress, there were 56 cosponsors in the House and Senate; supporters are aiming for over 100 cosponsors in the 109th Congress.

In an indication of leadership support for the Fair Tax, Linder recently moved from the Rules to the all powerful, tax-writing Ways & Means Committee. House Speaker Dennis Hastert expressed support for sales taxes in his recent book and Majority Leader Tom DeLay is a cosponsor of the Fair Tax Bill.

Americans For Fair Taxation ( AFFT) has over 560,000 supporters and 280 congressional district directors across the country that are organizing local support for the legislation. Additional support has come from the National Taxpayers Union (NTU) with 350,000 members. The American Farm Bureau Federation (and its six million members) has a policy that describes the Fair Tax well, while excluding any form of income tax or value-added tax (VAT) for tax reform options. Other directly sponsoring organizations include 60 Plus, the National Small Business Association, and Associated General Contractors.

In letters to both Congressman Linder and to Senator Chambliss, the NTU endorsed the bill urging all Members of Congress to join as cosponsors and said, “ the bill will be heavily weighted in our annual Rating of Congress.”

HR 25/S 25 ‑ commonly called the Fair Tax ‑ eliminates all personal, gift, estate, capital gains, alternative minimum, earned income, Social Security/Medicare, self-employment, and corporate taxes. The legislative package is revenue neutral for Social Security, Medicare and treasury revenue, delivering the same amount of revenue as the current systems.

The Fair Tax is the only comprehensive Tax Simplification and Reform plan that is in full legislative form and ready to go. Portions of the legislation already take into account transitions from an income tax to a sales tax and answer the concerns expressed by Greenspan in switching to a pure consumption tax. If we were to leave the income tax even in part than we would certainly suffer the fate of the Europeans who also have a VAT and an income tax but they also have the worst economic growth. Several Economists, including Dr. Dale Jorgensen of Harvard calculate economic growth in the first year of the Fair Tax at 10.5%. The research section of the Fair Tax web site under the direction of Dr. Karen Walby shows the ten fold economic benefits of the Fair Tax to American Families and to American Business.

Dr. Walby and Dr. Jorgensen both point out that under the Fair Tax Legislative package prices will first drop 22 to 25% before we add in the National Sales Tax portion of the Fair Tax. This is due to the elimination of hidden business taxes that are in the price of every product and service American families buy. American families that spent $1,000 after taxes under the income tax system will now spend about 25% less on those same purchases under the Fair Tax or $750 dollars. When you add on the Fair Tax at 30%( income tax equivalent of 23%), your new total for the same purchases is $975.

An Average family of 4 making $50,000 will have $7,500 more in take home pay and spendable income under the Fair Tax. This provides the basis for increased savings that Chairman Greenspan has also called for. Allowing working families to take home 100% of their paycheck free of federal withdrawals.

Democrats have already come out against Chairman Greenspan’s comments. Democrats like Charlie Rangel of New York said Friday that he was opposed to a flat rate sales tax because the poor pay the same rate as the rich. The Fair Tax answers that concern as well; Another key component of the Fair tax that has been well researched is their Prebate system designed to make this new tax system progressive and to protect both the Poor and Senior Citizens. Instead of exempting any product from the National Sales Tax, The Fair Tax keeps it simple by giving every person with a valid Social Security number a standard rebate up to the poverty line of spending. According to Health and Human Services for an individual that is $9310 and for a family of 4 it is $24,980. Under the Fair Tax the individual would receive a monthly check of $178/m and the family of 4 would receive $479/m. This would cover all of the sales tax on everything spent up to the poverty line. At the same time this makes the net effective rates for the poor at poverty line a true 0% because under the Fair Tax there are no payroll taxes or income taxes taken out of a families paycheck. The more you spend the higher your net effective rate. For those at 4 times poverty line about 17.2 % for the wealthy closer to 23%. The Fair Tax is much more than just a national sales tax. It is both a progressive and fair tax system that simplifies our lives and grows our economy.

The research and the legislative preparation have already been done. The Fair Tax is waiting in the wings for Democrats and Republicans to drive it out of the garage and supercharge our economy.

The key benefit to going with a complete replacement of the income tax with the Fair Tax package is the economic benefit to American Manufacturing and job growth. By eliminating corporate business and payroll taxes you not only eliminate that pass through cost to American consumers but also create a greater demand for American made products for export. Under the Fair Tax, Exports will not pay our National Sales Tax; couple that with the complete elimination of income taxes and prices for our goods overseas will be 22 to 25% less. American workers cannot compete with low wage countries nor do they want to, but we can compete globally with lower taxes on business and on American made products. Good paying manufacturing jobs will be the result of creating a corporate tax free zone in America. Instead of business going offshore to Mexico or China or the Bahamas for Corporate headquarters, American business will have a major incentive to produce in the United States.

You can’t keep any portion of the income tax and get the same results. The economic growth projections of 10.5% come in part by eliminating the wasted money spent in time and dollars on tax compliance under the “archaic income tax code”. Estimated compliance costs savings for American families and American business range from 250 to 400 billion annually. If you leave part of the income tax, you don’t save this nor do you have the same effect on lowering prices for export, growing jobs and fighting outsourcing.

When you add up the political momentum which includes; the goals that the President set down for his tax reform panel; the Open letter sent to the President by Nancy Pelosi, Charlie Rangel and the Democratic leadership in December which called for Tax simplification that was progressive and revenue neutral; and finally Chairman Greenspan’s support of a National Sales Tax, you find that the answer for American Families all adds up to and equals the Fair Tax – A comprehensive and progressive new tax system that replaces the income tax; gives every American Family a Raise; supercharges our economy to compete more fairly in the global marketplace and makes us stronger financially at home for a true ownership society.