{"id":284,"date":"2013-09-08T13:11:15","date_gmt":"2013-09-08T18:11:15","guid":{"rendered":"http:\/\/therichdontpaytax.com\/blog\/?p=284"},"modified":"2013-09-14T03:06:51","modified_gmt":"2013-09-14T08:06:51","slug":"a-goals-based-analysis-of-tax-reform-proposals","status":"publish","type":"post","link":"http:\/\/therichdontpaytax.com\/blog\/a-goals-based-analysis-of-tax-reform-proposals\/","title":{"rendered":"A ‘Goals-Based’ analysis of tax reform proposals"},"content":{"rendered":"

\"Scoring<\/a>Those of varying political persuasions, be they liberal or conservative, will try to tell us why their chosen tax reform proposal is better than any other. But in most cases, the proponents of the various tax reform proposals limit their talking points to only a very narrow spectrum of economic analysis; specifically an area where their chosen proposal\u00a0appears<\/em>\u00a0to hold an advantage. But when we take a broader look at how these proposals affect the rest of the economy, in a point-by-point analysis, most tax reform proposals fall apart.<\/p>\n

So at “The Rich Don’t Pay Tax! \u2026Or Do They?” (http:\/\/TheRichDontPayTax.com\/<\/a>), we decided to address tax reform from a\u00a0“Goals-Based”<\/strong>\u00a0perspective. This is how successful businesses make major decisions. Before trying to solve a complex problem, they define what will constitute success by establishing goals that are based on known and possible problems. Only then,\u00a0after<\/strong>\u00a0the goals have been defined, do they evaluate each potential solution, against those previously established goals. The method that best meets each of the previously established goals is the solution that they go with. This quantitative approach consistently provides the best possible solution, by eliminating any bias that certain people in management may have toward a particular plan or strategy.<\/p>\n

Therefore, since “Goals’Based” evaluation of potential solutions is a time-tested and proven methodology, that’s the method that we decided to use to approach tax reform.<\/p>\n

Interestingly, when we applied this proven “Goals-Based” methodology to tax reform, one proposal stood out far above the rest. In fact, the next best tax reform proposal scored only half as well.<\/p>\n

The tax reform proposals that we examined were:<\/p>\n

    \n
  1. the current progressive income tax (included only because it’s the benchmark against which any other tax reform will be measured),<\/li>\n
  2. a flatter, less progressive income tax,<\/li>\n
  3. a more progressive income tax (making the rich pay a larger share of their income in taxes),<\/li>\n
  4. a flat income tax with a corporate income tax and\/or payroll tax component,<\/li>\n
  5. a flat income tax with no corporate income tax or payroll tax component,<\/li>\n
  6. Herman Cain’s 9-9-9 proposal, and<\/li>\n
  7. the FairTax.<\/li>\n<\/ol>\n

    Note: For the purpose of this evaluation, we assume that in any flat income tax, there will still be a dependent deduction and that savings and investments won’t be taxed. Granted, this assumption may be expecting a lot of our lawmakers. But otherwise, a flat income tax would meet few of the goals for successful tax reform.<\/em><\/p>\n

    In the book, “The Rich Don’t Pay Tax! \u2026Or Do They?<\/a>“, 13 goals for successful tax reform were established and evaluated, using this method. Reader feedback indicated that this was considered to be one of the most persuasive parts of the book. As a result of this feedback, I decided to compress those chapters into a single abbreviated article. But before doing so, I submitted those goals to readers of our\u00a0blog<\/a>\u00a0and asked for more suggested goals. Readers then contributed three more goals to the list. Although there is not space in this article to go into great detail, the results are still clear. Those goals are:<\/p>\n

      \n
    1. Clear and Simple<\/li>\n
    2. Transparent<\/li>\n
    3. Unintrusive<\/li>\n
    4. Fair to All<\/li>\n
    5. Un-Tax the Cost of Living<\/li>\n
    6. Increase Compliance<\/li>\n
    7. Reduce Compliance Costs<\/li>\n
    8. Reward Savings and Investment<\/li>\n
    9. Tax the Underground Economy<\/li>\n
    10. Repatriate Off-Shored Jobs<\/li>\n
    11. Repatriate Lost Wealth<\/li>\n
    12. Encourage Foreign Investment<\/li>\n
    13. Make Favoritism Difficult<\/li>\n
    14. Revenue Neutral<\/li>\n
    15. Have a Chance of Becoming Law<\/li>\n
    16. Make Raising Taxes Difficult<\/li>\n<\/ol>\n

      We invite you to add any reasonable goals for tax reform to this list and then compare the above tax reform proposals to those new goals. These should be general goals related to the economy. Then we invite you to go a step further and fairly compare any other tax reform proposal to these goals and any other goals that you can come up with. Regardless of the goals you choose and the types of proposals you evaluate against them, you’ll find that one of the above proposals leaves all the others behind.<\/p>\n

      Note: In order to take out any bias, be sure to add any additional goals that you think important, before you start your evaluation.<\/em><\/p>\n

      This quantitative methodology takes the politics and spin out of tax reform and makes it clear what will work and what won’t.<\/p>\n

      For the record, a number of years ago, when I first became interested in tax reform, the method that I thought best was different than what I believe to be best today. The change came a couple of years after I started looking into tax reform options, when I decided to use this proven problem-solving method to evaluate the various proposals. The results of my comparison, like you’ll see in this list, were so conclusive that I had no choice but to abandon the tax reform plan that I had previously championed. My own quantitative evaluation had made it suddenly clear what method of tax reform was needed. When you apply this proven method yourself, I’m sure you’ll agree, even if like me when I did it, you have to swallow your pride and change directions.<\/p>\n

      Use our star-ratings or apply your own star-ratings to the various proposals on this list. Either way, you may be quite surprised at the outcome.<\/p>\n

      In the end, there is one and only one type of tax reform that both qualifies as substantive and equitable tax reform and that will produce the kind of positive economic results that we need to see. Click through the steps on this list to learn what it is. Each of the following pages covers just one of the goals listed above, with the last page being a summary.<\/p>\n

      Next\u00a0\u00bb<\/a>
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      \"Goal:<\/a><\/p>\n

      Goal: Clear and Simple<\/h2>\n

      Any income tax – flat or progressive – that includes corporate or payroll taxes is not simple.<\/p>\n

      On the other hand, a flat income tax is almost as simple as you can get, but only if it doesn’t<\/strong> include a corporate tax, a payroll tax or taxes on savings and investment. Any corporate income tax, payroll tax or a tax on savings and investment would completely negate any benefits of a flat income tax.<\/p>\n

      Any advantage that flattening the personal income tax gives individual taxpayers under 9-9-9, is offset by adding a layer of complexity for retail businesses. Granted, that added complexity is minor. But as with the flat income tax, the corporate income tax component of 9-9-9 also adds to the complexity of that scheme.<\/p>\n

      The FairTax has only a very slight edge in simplicity, over a truly flat income tax. That’s because under a flat income tax you still have to keep track of your earnings and calculate your taxes once a year, whereas under the FairTax, all tax calculations are done for you at the cash register. Some may suggest that this difference is so minor that it should be considered insignificant. But remember that we are already being very generous with the flat income tax in assuming that a flat income tax will have no corporate, payroll or savings tax component. We can only favor it so much. Therefore, the FairTax edges out the flat income tax on simplicity.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Transparency<\/h2>\n

      Income taxes, in general, are anything but transparent.<\/p>\n

      A flat income tax would appear, at first glance, to be transparent. But all past flat income tax proposals have included a tax on savings and investment, which most people don’t realize is really double taxation, since their money is taxed when it’s earned and then again, when they pull it out of savings. If that double taxation isn’t visible and understandable to the average person, then it’s not transparent.\u00a0However, should a flat income tax be passed that does not tax savings and investment and does not include a corporate or payroll tax, then such a tax would eliminate most transparency issues.<\/p>\n

      9-9-9, with it’s combination of a sales tax, stacked on top of both personal and corporate income taxes creates a fertile field for Congress to fiddle with the tax code in ways that will be confusing to anyone who doesn’t have a degree in accounting. However, we were generous and gave 9-9-9 one star, since the sales tax portion does add a slight degree of transparency to it.<\/p>\n

      But the FairTax again goes one better that the flat income tax. The FairTax is collected only once – at the point of final retail sale – thus making every penny of tax visible to the taxpayer, on the receipt. So every time throughout the year that a consumer makes a purchase, he is reminded of exactly how much tax he is paying. That’s absolute transparency.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Unintrusive<\/h2>\n

      Most Americans would not argue that the IRS is the most intrusive government agency in the world.<\/p>\n

      So consider that any tax on income, be it flat or progressive, will still requires that the IRS remain intact, to insure compliance. Think about it. Without an IRS, how would the government know that every taxpayer was reporting his earnings correctly? Without any fear of an agency policing income tax reporting, tax evasion schemes would become rampant, from the very rich to the minimum wage worker. Therefore, it is a truism that as long as there is an income tax, there will be an IRS or an agency of the same purpose, by a different name.<\/p>\n

      Even 9-9-9 includes income tax components, so it too, requires that the IRS remain intact.<\/p>\n

      The only tax reform proposal that gets the IRS completely out of the lives of every taxpayer is the FairTax. In fact, the FairTax abolishes the IRS and requires the destruction of all personally identifiable data held by the IRS, with only two exceptions. Data required to continue prosecution of ongoing tax evasion cases will be kept until such time as those cases are settled and just that limited data required to calculate social security will be forwarded to the Social Security Administration.<\/p>\n

      Under the FairTax, individuals are not subject to audit unless they are selling new retail goods. Only retail businesses may face an audit under the FairTax and then only by state<\/strong> auditors; not the IRS<\/strong>. That’s because, under the FairTax, the states collect the sales tax (as they already do in 45 states), take out their portion, which reimburses them their costs for providing that service and then forward the rest to the federal government. Therefore, the federal government will audit only the states tax collection agencies, to insure that they are remitting the correct amount to the federal government. Under the FairTax, individuals who don’t sell new retail products will never again face an IRS audit. Furthermore, the FairTax is the only<\/strong> tax reform package that will completely eliminate the IRS.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Fair to All<\/h2>\n

      The more progressiveness there is in the tax code, the harder it hits the upper income brackets. But before you start shedding crocodile tears for the rich, consider that embedded corporate and payroll taxes more than offset any change in progressiveness in the income tax code and it’s those embedded taxes unfairly hit the poor hardest. So our current system, regardless of progressiveness, manages to be quite unfair to the poor; most of whom don’t even realize how much they are paying in additional embedded taxes (see “Goal: Transparency”).<\/p>\n

      On the other hand, IF<\/strong> a flat income tax contains no corporate tax or payroll tax, then this downside of embedded taxes is pretty much eliminated. But by its very nature, a flat income tax unfairly hits the poor hardest. IF<\/strong> however, a flat income tax also includes a dependent deduction, much of the pain on the poor is eliminated. However, a tax on savings could undo all of this. But\u00a0a flat income tax could be pretty fair to everyone IF<\/strong> it\u00a0does not impose a tax on savings. “IF”<\/strong>, “IF”<\/strong>, “IF”<\/strong>. In fact, it’s very unlikely that all these “IFs”<\/strong> will get into a flat income tax. No past flat income tax proposals have included all of them. But even if only two of those “if” make it into a flat income tax, it would go a long way towards becoming fair to all, we assume the best and give it three stars.<\/p>\n

      9-9-9, containing three taxes, actually gives us the worst of all worlds. The sales tax component would appear to help. But without a method to keep it from unfairly hitting the poor hardest, it offers little benefit. In fact, the poor are hardest hit by the flat personal income tax portion, the embedded corporate tax portion also hits the poor hardest, and the sales tax portion, that has no prebate, hits the poor hardest. This combination would be devastating to the poor. We were however, generous, and gave it one star for the very small positive effect of the sales tax component.<\/p>\n

      The FairTax, on the other hand, eliminates both the personal and corporate income taxes that currently help keep the poor down. Furthermore, it doesn’t tax savings and investment. Then it goes on to solve the problem that has traditionally plagued sales taxes. Unlike past sales taxes, that hit the poor harder than most others, the FairTax includes a prebate for every citizen or permanent resident family. That prebate is based exclusively on family size and is equal to the amount of sales tax that a family of that size would pay on poverty level spending. The result is that although the effective rate goes up as spending goes up, everyone is taxed at exactly the same rate and everyone receives exactly the same prebate, based on family size. It’s hard to complain that you aren’t being treated fairly, when you’re being treated exactly the same as everyone else.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Un-Tax the Cost of Living<\/h2>\n

      Embedded corporate and payroll taxes more than offset any changes to income tax progressiveness that is\u00a0supposed to<\/em>\u00a0un-tax the cost of living. Therefore, making it less progressive helps very little. But to be generous, we awarded one star for a less progressive income tax.<\/p>\n

      Though a flat income tax, by its nature, hits the poor hard, the elimination of a corporate and payroll tax would soften the blow to the poor slightly. Then if a dependent deduction were included, tax on cost of living would be almost eliminated.<\/p>\n

      Since 9-9-9 contains three forms of tax, it has the problems of all three. A standard dependent deduction on the personal income tax portion of 9-9-9 would help only marginally, since there would still be corporate taxes embedded in the price of every purchase.<\/p>\n

      The FairTax, on the other hand, includes a prebate that is equal to the amount of tax that would be paid by a family spending at the poverty level, for a family of that size, on all new retail goods or services. Every family of a given size will get the exact same prebate. This completely un-taxes all spending up to the poverty level, for all taxpayers, regardless of spending level. After accounting for the prebate, someone spending at or below the poverty level pays no tax at all. Someone spending just above the poverty level, will pay very little tax, as he will only pay sales tax that is beyond the prebate amount maybe one or two days a month. There are no complex calculations for taxpayers. It just happens. But poor or rich, spending up to the poverty level is not taxed at all under the FairTax.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Increase Compliance<\/h2>\n

      By far, the most significant increases in compliance can be seen by reducing the number of collection points for any tax. Fewer collection points means fewer opportunities for tax fraud. Fewer places for tax fraud to occur means that tax fraud is easier to detect and less money need be devoted to such policing.<\/p>\n

      Since changes in progressiveness, including a flat income tax, with a corporate or payroll tax component won’t change the number of collection points, it follows that changing progressiveness won’t make any difference.<\/p>\n

      A flat income tax that has no corporate or payroll tax component eliminates around 10.5 million business collection points, which represents only a slight improvement.<\/p>\n

      9-9-9 has all of the compliance problems of the current income tax and adds an additional layer, albeit a\u00a0very minor one, of sales tax compliance.<\/p>\n

      The FairTax eliminates more than 145 million individual and several million non-retail business tax collection points. For tax fraud to remain as high under the FairTax, as it is today, the number of people willing to commit tax fraud would have to increase more than 14 fold. That’s just not going to happen, espceially since fewer tax collection points makes tax fraud easier to detect.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Reduce Compliance Costs<\/h2>\n

      Changing the progressiveness of the income tax, short of making it flat, will have little to no effect on compliance costs. You see, compliance costs are related to such things as increases or decreases in paperwork, the need for more or less tax accountants and of course, records retention requirements. Changing rates doesn’t change any of those compliance costs.<\/p>\n

      A flat income tax that has a corporate or payroll tax component will have somewhat lower costs associated with it. However, since businesses generate income in many ways, they have much higher compliance costs. In fact, just the record storage requirements for businesses, under any form of corporate income tax, are always significant.<\/p>\n

      By contrast, the only costs associated with a flat income tax that excludes corporate and payroll tax components are related to record storage for 135 million individual taxpayers, whose storage requirements are generally limited to only a few file boxes. However, that’s only if such a flat income tax doesn’t tax savings and investments. But as mentioned earlier, this’s quite unlikely. Still, we gave it four stars.<\/p>\n

      9-9-9 inherits the very high compliance costs of \u00a0both a personal and a corporate income tax, and then goes on to actually add a layer of additional, albeit minor, compliance costs, related to the sales tax. But even without that small extra layer of costs, 9-9-9 still fails to have any effect at all on reducing compliance costs, due to\u00a0all the compliance issues of the current system that 9-9-9 inherits.<\/p>\n

      On the other hand, the only compliance costs associated with the FairTax are related to record storage and then, only for about 8 million retail businesses, plus an insignificant cost to update cash register software. Moreover, the only retained records that are required for the FairTax are those pertaining to retail sales and most of that will be automated in the cash register or in the sales software. In most cases, a company’s bookkeeper will be able to handle the FairTax and\u00a0no tax accountant will be needed<\/strong>.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Reward Savings and Investment<\/h2>\n

      Since an income tax is, by definition, a tax on productivity and rewards only spending, none of the forms of income tax can be said to, in any way, encourage savings and investment.<\/p>\n

      The best that can be said for\u00a0any form of income tax is that a flat income tax that doesn’t tax savings and investment would neither reward nor punish savings. So we gave it one star for not punishing savings and investment.<\/p>\n

      9-9-9 really doesn’t do much in this area, since two-thirds of 9-9-9 are income taxes that punish savings. But since a third of 9-9-9 is not based on income, we were generous and gave it one star.<\/p>\n

      On this issue, the FairTax stands alone. Since the FairTax is only collected when money is spent, it encourages savings and investment. You have a choice of when you pay tax. If you only pay tax when you spend money, it’s a strong encouragement to invest your money, instead of spending it, so you can have more money to spend later. In other words, you can spend now and pay tax now or you can save now and have more money to spend later.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Tax the Underground Economy<\/h2>\n

      All forms of income tax require that employers report the salaries that they pay their employees and contractors and that employees report all of their income. But the underground economy (drug dealers, thieves, prostitutes, illegal aliens and more) don’t report their illicit income and neither do those who pay them.\u00a0For this reason, no form of income tax can ever collect from the underground economy.<\/p>\n

      By contrast, a retail sales tax can’t be avoided. Whether it’s utility bills, limousines, pluming repair, or airplanes, when a new product is purchased or a service is used, the tax is paid.<\/p>\n

      Since 9-9-9 is one-third sales tax, it nominally taxes the underground economy. But the income tax portions are still easily avoidable.<\/p>\n

      The FairTax, being a pure retail sales tax, cannot be avoided by the underground economy. Everything from the pimp’s Rolex, to the hit man’s ammo, to the meth lab’s electric bill, to the illegal alien’s lawn mower, to the mob boss’ multi-million dollar yacht is taxed at the same rate that everyone else pays. There is no place for them to hide. When they spend money on a service or a new retail product, they pay tax.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Repatriate Off-shored Jobs<\/h2>\n

      As long as there is a corporate income tax and an IRS, off-shored jobs will remain offshore. Changing the progressiveness of the tax brackets in either direction will make no difference.<\/p>\n

      A flat income tax, that does not contain a corporate tax or payroll tax component, will help to prevent more jobs being shipped offshore. But since an income tax will still require the continuation of IRS to oversee compliance, most companies that have already sent jobs offshore will be hesitant to move any of their production back to the USA, especially considering the fact that history shows us that a flat income tax will not stay flat for long.<\/p>\n

      In this regard, the income tax components of 9-9-9 will more than negate the positive effects of the sales tax component of that scheme. In fact, the added complexity of the 9-9-9 scheme may actually encourage more offshoring of jobs.<\/p>\n

      On the other hand, the FairTax not only eliminates the corporate income tax, it eliminates the IRS, which are two of the major factors driving the offshoring of jobs. Removing those two factors alone, will turn around the offshoring of jobs. Then add in the fact that the FairTax contains no tax on savings and no payroll tax and the USA will become a tremendous jobs magnet. Corporations that have sent production offshore will rush to bring those jobs back to our shores, so they can build their products where there is no corporate income tax and no IRS.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Repatriate Lost Wealth<\/h2>\n

      Millionaires and billionaires are fleeing the USA at the\u00a0highest rate in history<\/a>, due to a very progressive income tax that punishes success. Worse yet, when they leave, they take their investment dollars and tax revenue with them to their new home. But studies have repeatedly shown that the vast majority of those expats never wanted to leave the USA, but in fact, felt like they were given no other choice. An abusive tax code that punishes success and an even more abusive IRS are two of the most significant factors driving wealth expatriation. Give them a good reason to return and most of them would jump at the opportunity. But just tweaking the current tax code isn’t going to be enough.<\/p>\n

      Past efforts at reducing the progressiveness of our current income tax has only slowed down that exodus; not reversed it. Likewise, increasing progressiveness has always increased that exodus. The difference is really insignificant.<\/p>\n

      Flattening the tax level of the income tax, especially if there is no corporate or payroll tax component, will certainly inspire the return of some of those wealthy expats, with their investment capital in tow, though likely not much, since the IRS will remain a threat. Also, those who have left know that a flat income tax will not stay flat for long. Therefore, we can expect that any return of wealth motivated by flattening the income tax will be very limited.<\/p>\n

      While the sales tax portion of 9-9-9 and its reduced income tax level will help create motivation for the return of wealthy expats, 9-9-9\u00a0retains the IRS and even adds a slight level of complexity to the tax code. The result will be only a modest level of wealth repatriation.<\/p>\n

      But the FairTax, by eliminating the IRS and all tax on income, will create an extremely favorable tax and investment environment that will in turn, become a huge wealth magnet for all those expatriated dollars and the expats who hold them.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Encourage Foreign Investment<\/h2>\n

      The same factors that apply to returning lost wealth apply to encouraging foreign investment.<\/p>\n

      Taxing income is regressive. The more progressive an income tax, the less attractive a nation becomes for foreign investment. The flatter an income tax, the more financially attractive a nation becomes.<\/p>\n

      Therefore, changes to the progressiveness of our current system will have no effect on encouraging foreign investment.<\/p>\n

      A flat income tax, especially one that excludes corporate and payroll taxes, should have a minor positive effect – minor, because any form of income tax will still require an IRS to insure compliance.<\/p>\n

      The income tax components of 9-9-9 negate much of the benefit of the sales tax component and actually adds a layer of complexity. Of course the income tax portions of 9-9-9 will require the retention of the IRS. We’re being generous in giving it two stars on this goal.<\/p>\n

      But the FairTax, by eliminating the IRS and all income taxes, will create an extremely positive investment environment that will drive massive investment in U.S. business. This new investment will create a tremendous amount of new jobs, which translates to a significantly broadened tax base. This further translates to new tax revenue. In fact, 80% of top foreign manufacturers said in a poll that if the USA were to end the income tax and adopt a national retail sales tax, they would build more production facilities in the USA and 20% said they would move their corporate headquarters here. That’s powerful.<\/p>\n

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      \"Make<\/a><\/p>\n

      Goal: Make Favoritism Difficult<\/h2>\n

      As long as income is taxed, the practice of using the tax code to favor big donors over constituents will continue.<\/p>\n

      A progressive income tax makes tax favoritism so easy that today we have so many tax breaks and exclusions that no single tax accountant can keep up with them all.<\/p>\n

      Even a flat income tax that contains a corporate income tax component will soon see tax breaks for “favored” businesses. The tax rate could remain technically flat, but certain kinds of income (income that is key to certain favored businesses) would become exempt. Of course, as with all tax breaks, those breaks mean that individuals pay more to make up the difference.<\/p>\n

      A flat income tax that does not have a corporate tax component fairs much better. However, as long as income is taxed, adding a corporate tax back into the mix is just way too easy. But for our purpose here, we are looking only at the initial effect, so we gave it 4-stars. Just remember that as soon as a corporate tax is added back into such a flat income tax, it will drop back to 1-star.<\/p>\n

      Since 9-9-9 includes a corporate income tax, its effect will be similar to the flat income tax that retains a corporate tax component. That corporate tax component will be manipulated. As shown above, Congress can keep a corporate income tax flat and still play favorites, by exempting certain types of favored income.<\/p>\n

      However, the FairTax not only eliminates all tax on income, but it abolishes the government’s tool for doling out favors (the IRS). Furthermore, it requires the repeal of the 16th Amendment within seven years, or the FairTax will revert at that time. Of course, after a few years without fear of the IRS, no favoritism and feeling the result of a strongly boosted economy, relieved taxpayers will adamantly oppose an return to IRS tyranny. Those relieved taxpayers will drive repeal of the 16th Amendment and with the demise of the 16th Amendment will go any chance of tax code favoritism.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Revenue Neutral<\/h2>\n

      Not knowing how Congress may change tax rates, we can only assume (maybe too generously) that any changes to an income tax, be it progressive or flat, will be nominally revenue neutral.\u00a0That leaves 9-9-9 and the FairTax.<\/p>\n

      Of course, 9-9-9 was never properly thought out. If you remember, it was hurriedly cobbled together, not as a viable plan, but as a talking point, to boost a sagging presidential campaign. Nobody was supposed to actually evaluate the scheme till after the election. But shortly after its introduction, many economists began pointing out credible flaws in the scheme, which forced Herman Cain to make hasty modifications to it. In fact, it keeps getting modified, while more than a few top economists still say that 9-9-9 won’t create enough revenue.<\/p>\n

      On the other hand, unlike 9-9-9, that was hurriedly created by political operatives, the FairTax was designed over several years, by numerous top level economists, whose instructions were only to\u00a0create the best possible tax system<\/strong><\/em>\u00a0and make it\u00a0revenue neutral<\/strong><\/em>. More than $23 million dollars have since been spent to develop the FairTax and insure that it will be revenue neutral.<\/p>\n

      But alas, there are still some economists who tell us that the FairTax will only remain revenue neutral if no new jobs are created. But as we’ve already learned, since the FairTax will encourage both the return of expatriated dollars and new foreign investment, those dollars will in turn, create huge amounts of new jobs. In fact, the FairTax could soon be creating more revenue than the current system, while each individual would be paying less.<\/p>\n

      However, as we have done with other proposals on other goals, we are only looking at how it would start out and that would be revenue neutral, which is why we gave it five stars.<\/p>\n

      But let’s look a few years ahead. As more jobs are created under the FairTax and revenue increases, voters, who under the FairTax, see every penny that they pay in tax on every sales receipt, would demand of Congress that they lower the FairTax rate, instead of spending that additional revenue. Congress would want to spend that extra revenue and in the past they wold be able to do so. You see, people always want lower taxes. But under the current system, they don’t think about taxes but once a year and so, they don’t keep the pressure on Congress and Congress does what they want. But under the FairTax, that constant sales receipt reminder would keep most taxpayers focused on the issue and the rates would be forced down. But think about it for a moment. Wouldn’t that be a nice problem to have?<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Have a Chance of Becoming Law<\/h2>\n

      The progressiveness of our current income tax changes all the time, so the progressive income tax variations get five stars.<\/p>\n

      However, despite what some in Congress would have taxpayers believe, a flat income tax has very little chance of becoming law. This conclusion is based upon two points. President Reagan wanted to flatten the tax rate, but the best even he could achieve was two brackets. Also, no flat tax bill in recent history has had more than 5 co-sponsors in Congress. But remember that we’re trying to be generous with the flat income tax, so we’ll pretend that so called “Flat Tax Act” that Rep. Michael Burgess (R-TX26) keeps submitting each session really is a flat income tax. So if we include this bill as a flat income tax, then we must say that no flat income tax bill in recent history has had more than 10 co-sponsors (still an insignificant number). But when we consider the flaws in that bill, it really is difficult to call it a flat income tax. Besides having a corporate income tax component that has some serious issues, it also taxes retirement distributions and unemployment compensation, on which the employee has already paid tax, when the money was earned. So now we’re talking double taxation and embedded taxes. But whether it’s 5 or 10 co-sponsors is of little import, since even 10 co-sponsors is insignificant.<\/p>\n

      We’ll continue to hear about a flat income tax, since talking about such a tax allows the tax and spend crowd, on both sides of the aisle, to deflect talk of real tax reform. In fact, a flat income tax makes great talking points. But that’s all it is. The reality is that it just won’t happen.<\/p>\n

      Then we have 9-9-9, which is worse yet. Besides the personal income tax component and the sales tax component, which are paid directly, the corporate income tax component is built into the price of every purchase. When 9-9-9 supporters eventually realize that under that plan, they will pay tax on the same dollar three times – once when it’s earned and twice when it’s spent – they turn against it. Remember that under 9-9-9 corporate income taxes will be embedded in the price of every retail product. Let’s face it. Nobody wants to be taxed three times on the same dollar. Perhaps that’s why 9-9-9 has gained no traction.<\/p>\n

      On the other hand, the FairTax gains more support with each new class of Congress, today having 79 sponsors and co-sponsors. That’s more co-sponsors than most tax bills that have ever become law. Even the leaders of both parties, who have become addicted to lobbyists’ money, are now feeling the pressure to bring the FairTax to the floor, for a vote. Critical mass to get a bill out of committee, when the leadership is blocking it tends to be around 90 to 100 co-sponsors across both houses. That could easily be achieved this session. It’s not a matter of “IF,” but “WHEN” the FairTax becomes law.<\/p>\n

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      \"Goal:<\/a><\/p>\n

      Goal: Make Raising Rates Politically Hazardous<\/h2>\n

      Changing the progressiveness of an income tax does nothing to make it difficult to raise taxes. We see it regularly. Part of the reason why it’s so easy for Congress to raise tax rates under any income tax is that voters only think about the income tax rates once a year and that date is nowhere near election day. If elections were to be held on April 16, raising rates on a progressive income tax might become politically hazardous. But that’s not going to happen.<\/p>\n

      A flat income tax, with a corporate component, is only slightly better, since increases in embedded corporate taxes are not seen by most taxpayers. Furthermore, like the progressive income tax, taxpayers would only think about the tax rates once a year.<\/p>\n

      A flat income tax without a corporate component is much better, since without embedded corporate taxes in all retail prices, any increase in the tax rate would be more obvious. But again, such increases are really obvious only one day a year and that day is about seven months before election day.<\/p>\n

      9-9-9 is so convoluted that Congress could easily play games with it, safe in the knowledge that most people wouldn’t have the foggiest idea what’s happening.<\/p>\n

      On the other hand, since the FairTax is collected at the time of every retail sale of a new product or service, voters will be reminded of any tax increase every day throughout the year, including election day. Congress will be afraid to raise taxes, for fear of voter backlash. In fact, that daily reminder of how much tax they are really paying could very well inspire voters to pressure Congress into lowering the FairTax rate, especially after more new jobs increases the tax revenue and makes reducing the tax rate an obvious next step.<\/p>\n

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      \"And<\/a><\/p>\n

      And the winner is\u2026<\/h1>\n

      Out of a possible 80 stars, only one type of tax reform meets ALL of the basic goals for effective and equitable tax reform and that’s the\u00a0FairTax<\/strong><\/a>, with a total of 80 stars.<\/p>\n

      The next closest proposal, meeting barely over half of the goals (44 stars) was a flat income tax that contains no corporate tax or payroll tax component. This type of flat income tax, in fact, was the plan that I mentioned earlier, that I had championed, before applying a goals-based analysis to all of the tax reform proposals on the table. You can see, as did I, how it falls far short of being either equitable or creating a better economy.<\/p>\n

      Remember too, that we were very generous with the flat income tax, by assuming that savings would not be taxed, which is really an unlikely assumption. If savings were taxed, then the flat income tax would fall to just above the level of 9-9-9. We were also generous with the flat income tax by assuming that such a tax would remain flat, beyond the next election. Of course the odds of that happening are as remote as the odds that a majority of Congress will actually fulfill all of their election promises. In other words, a flat income tax remaining flat for more than one term of Congress is not going to happen. Remember that Reagan got us to only two tax brackets and we can see how that worked out. In just over two years after he left office one more bracket was added and it was back up to five brackets just two years after that. Today, we’re sitting at seven far more progressive brackets. So when you consider the fact that a flat income tax will not remain flat for long, a flat income tax should rank the same as a less progressive income tax or just barely above the current system.<\/p>\n

      In third place, with only 20 stars, is a flat income tax that keeps a corporate income tax and\/or payroll tax. Of course, we were just as generous in our assumptions with this form of flat income tax as we were with the one that excluded the corporate and payroll taxes. Similarly, when you consider that a flat income tax will not remain flat for long, this proposal is no better than what we have today.<\/p>\n

      Then there’s 9-9-9, that only manages to beat out a less progressive income tax by two stars. Its convoluted mixture of taxes clearly gives taxpayers the worst of each of the other forms of tax, while providing few advantages. But it’s worse than it appears. Although we gave it 14 stars, that’s very misleading. Remember that our ratings were based only on the immediate changes. Unfortunately, 9-9-9 includes both a personal flat income tax and a corporate flat income tax and we know that neither will remain flat. This makes 9-9-9 the worst of all proposals. It keeps the IRS and offers Congress a clear path back to the high progressive income tax that we have today\u00a0AND<\/strong>\u00a0adds a sales tax, on top of that. When you consider that fact, 9-9-9 is far worse than even the current broken system.<\/p>\n

      When you take the spin out of tax reform, by rating each proposal on goals achieved, the choice becomes obvious. The FairTax<\/strong> is the result of years of research and planning, by many of the world’s top economists, whose mandate was to create the best, most effective and equitable type of tax for Americans. They succeeded. The FairTax is the only tax reform proposal that meets every goal for effective and equitable tax reform. No other tax reform proposal comes close.<\/p>\n

      The FairTax takes power from lobbyists and returns it to the voters, while eliminating the most feared government agency since the Gestapo. It treats every citizen exactly the same while giving a sustainable boost to the economy. It encourages savings and investment, while giving taxpayers the choice of deferring taxation till they ultimately choose to spend their savings.<\/p>\n

      The FairTax not only meets, but exceeds every reasonable goal for tax reform.<\/strong>\u00a0As stated above, no other tax reform proposal comes close.<\/p>\n

      For more details on how the various tax reform proposals meet these goals, read “The Rich Don’t Pay Tax! \u2026Or Do They?<\/a>“<\/strong> (http:\/\/www.amazon.com\/dp\/0615624375\/<\/a>). It’s the book that lays out only documented facts and takes the spin out of tax reform. Learn the details on why passing the FairTax is so critically important.<\/p>\n

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