FairTax in the News

Explain This to IRS: Tax Agency Is $32 Billion Short

Tamara Lytle Contributor

From on-line newsletter “Sphere”

(Jan. 6) -- The Internal Revenue Service suddenly reduced the amount of revenue it reported from delinquent collections by $32 billion, or about 27 percent, providing little information about what happened to the money, according to a report released Wednesday morning.

"There is an astonishing lack of transparency as to what is included in these revenue figures and how they are computed," said National Taxpayer Advocate Nina E. Olson as part of her annual report to Congress. "The failure to highlight and explain revisions of such magnitude erodes confidence in IRS's data reporting."

The IRS reported more than $121 billion in delinquent tax collection revenues from 2005 to 2007. But in its 2008 IRS Data Book, it quietly revised the number downward to less than $89 billion. Olson's report said that was part of a larger picture of the IRS now having a handle on what type of collection activities really bring in revenue.

IRS spokeswoman Michelle Eldridge said the IRS will explain the discrepancy this spring in its next Data Book. The $32 billion was taken off the revenue total because some of it involved double counting, she said. For instance, if four officers of a firm owed $1,000 for not paying payroll taxes and one of them paid the bill, it might be accidentally credited as $1,000 in revenue multiplied by all four officers.

Pete Sepp, vice president of the National Taxpayers Union, said the IRS appeared to be "obfuscating" whether additional funding for collecting delinquent taxes had actually yielded any results. "It's either a terrible deception or a terrible oversight. One way or another, Congress should get an answer."

A taxpayer could call and ask. But don't count on the phone being answered.

According to Olson's report, the IRS only plans to answer 71 percent of the calls it gets this year. That's barely above the 69 percent level in 1998 when Congress got so fed up with complaints about taxpayer service that it reformed the agency. And the numbers have gone down in recent years – during the 2009 tax filing season, only 64 percent of callers got through.

"It's a terrible indictment in this day and age that an agency can't even answer its phones," Sepp said. "That's setting the bar awfully low and would probably bankrupt any customer-service-oriented business."

When the call does go through, the IRS estimates that the taxpayers will be on hold for almost 12 minutes.

"This level of service is unacceptable," said Olson, whose office is part of the IRS but is charged with protecting the interests of taxpayers.

Eldridge said that although the percentage is down, the total number of calls answered was up – from 34 million in 2007 to 40 million in 2008 and 39 million last year. The past two years involved more callers with questions because of the rebate and other changes made in economic stimulus legislation.

And many of the calls that weren't answered were because taxpayers were redirected to IRS.gov, which could help them track their coming refund or answer questions. "While they are waiting on the phone lines, we are giving them other options," Eldridge said.

Olson also rapped the IRS for ramping up its filing of liens against taxpayers. She said a study has shown the lien increases have not brought in more revenue. Filing liens against people with little or no property ends up damaging their credit and making it harder for them to pay taxes in the future. The IRS should look at their ability to pay, including their other debts like credit cards, before deciding on a lien, she proposed.

Eldridge said studies other than the one cited by the taxpayer advocate office show the liens are an effective tool.

Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee, said the IRS seems more inter ested in helping big banks getting bailouts than small businesses.

"The placement of liens on the little guys shouldn't be automatic and computer-generated while the big banks get the benefit of agency discretion and concern in the executive offices. One, it's unfair, and two, it's bad for the economy," he said.

"The IRS has to use its discretion to determine when liens are the best course to improve tax collection and when they're just a knee-jerk enforcement tactic that will do more harm than good."

Grassley sought answers Wednesday, including the whereabouts of the $32 billion.

"This single data point seems to indicate that not only does the IRS have a problem in knowing who owes what, the agency apparently also isn't able to properly track the taxes that have been collected," Grassley said. "The problem deserves the attention of IRS top management, as well as policy-makers who are intent on giving the IRS more and more responsibilities."

Democrats in Congress are considering a health care bill that would make the IRS involved in enforcing a new requirement that people carry health insurance.

Howard Gleckman, a tax policy expert at the Urban Institute, said the concern is valid.

"It is absolutely true we are asking the IRS to take on a huge rule when it is having a hard time doing the job it is there to do," he said. "On the other hand, if someone in the government is going to do this, the IRS is probably the best place. The IRS already has contact with almost every American."

Tamara Lytle spent 11 years as a reporter with the Orlando Sentinel and 14 years with the New Haven Register. She has freelanced for publications including U.S. News and World Report, and AARP Bulletin.

Did You Khow?

From FairTax Chairman, Leo Linbeck’s testimony to the President’s Advisory Panel on Federal Tax Reform, 2005

“The FairTax makes the cost of government transparent. Today, small changes to the code shift tens of millions of dollars to particular taxpayers in ways not as visible as direct appropriations, but just as effective. With each special exemption, credit, deferral, deduction or definition that results, marginal tax rates are increased on everyone else. Complexity adds to the hidden nature of the taxes today. The FairTax is the simplest possible system, and that reinstates the principle that Americans have a right to understand the law to which they are subjected. When taxes are simple and transparent, they more readily reflect the cost of government to taxpayers, are less subject to lobbying and harder to raise. The same cannot be said for the flat tax or for business transfer taxes (BTTs), which while also based on consumption, perpetuate the myth that business entities do not pass the taxes forward.”

Ronald Reagan Would Have Loved the FairTax says son, Michael

He came to office with the nation’s economy badly wounded, record high interest rates, cars lined up around the block at gas stations, 10%+ unemployment, and - for the first time since World War II - gas rationing.

Many believed that the best days of the nation were behind us.

He told us to “stand tall” and he led by example. He laughed with opponents, winning them over to his generous personality and good nature, if not always his vision for a stronger nation, a smaller government and a renewed role for the American citizen.

He went to work to simplify the income tax code, to reduce the size of government and to “tear down this wall.” He accomplished all three—and more.

President Ronald Reagan had a vision for the nation and his vision harkened back to the principles of liberty, individual responsibility, and government as an honest servant of the people.

Today we struggle with more than one of every ten Americans out of work, with a growing national debt pledged against the future earnings of generations of yet-to-be-born Americans, and with Americans divided on almost every issue but one—a sinking certainty that our best days are behind us.

Like President Reagan, Michael Reagan, his eldest son, believes that transformational changes must be accomplished with all Americans working together. “If you love America, you love all Americans,” President Reagan said.

Michael Reagan says that if it had been developed, he is sure his father would have been a strong advocate for the FairTax. He has now agreed to help lead the FairTax National Victory Campaign. Given President Reagan’s record and Michael Reagan’s work to keep his legacy alive, it makes perfect sense.

“We need true tax reform that will at least make a start toward restoring for our children the American Dream that wealth is denied to no one, that each individual has the right to fly as high as his strength and ability will take him... But we cannot have such reform while our tax policy is engineered by people who view the tax as a means of achieving changes in our social structure,” said President Reagan.

We know that the FairTax is much, much more than a “good start;” it's the single most important answer to the unemployment that saps worker’s hope for the future, the crippling debt that hobbles healthy economic growth, and the fear that our children and grandchildren will now inherit a country in rapid decline.

We also know that the FairTax has the potential to unite a divided American people--both out of enlightened self-interest and in the common belief that it is the right thing to do for our future as a still great nation.

Welcome Michael Reagan!

2010: The Year of the FairTax

JANUARY 15, 2010

When it comes to federal taxes, it all begins with the House Ways and Means Committee, chaired by Rep. Charles Rangel. It’s one of the most powerful Congressional Committees in Washington. The authority of Ways and Means is breathtaking when it comes to wealth produced by American citizens.

The FairTax also falls under the jurisdiction of the Ways and Means Committee. Because FairTax supporters are now pressuring Mr. Rangel through our petition to hold a hearing on the FairTax, click here to add your name, supporters may want to learn more about this committee.

Here are some of the enumerated authorities and duties of this powerful committee:

(1) Federal revenue measures generally --The Committee on Ways and Means has the responsibility for raising the revenue required to finance the Federal Government. This includes individual and corporate income taxes, excise taxes, estate taxes, gift taxes, and other miscellaneous taxes.

(2) The bonded debt of the United States --The Committee on Ways and Means has jurisdiction over the authority of the Federal Government to borrow money. Title 31 of Chapter 31 of the U.S. Code authorizes the Secretary of the Treasury to conduct any necessary public borrowing subject to a maximum limit on the amount of borrowing outstanding at any one time. This statutory limit on the amount of public debt (“the debt ceiling”) currently is $8.18 trillion. The Committee’s jurisdiction also includes conditions under which the U.S. Department of the Treasury manages the Federal debt, such as restrictions on the conditions under which certain debt instruments are sold.

(3) National Social Security programs --The Committee on Ways and Means has jurisdiction over most of the programs authorized by the Social Security Act, which includes not only those programs that are normally referred to colloquially as “Social Security” but also social insurance programs and a whole series of grant-in-aid programs to State governments for a variety of purposes. The Social Security Act, as amended, contains 21 titles (a few of which have either expired or have been repealed).

(4) Trade and tariff legislation --The Committee on Ways and Means has responsibility over legislation relating to tariffs, import trade, and trade negotiations. In the early days of the Republic, tariff and customs receipts were major sources of revenue for the Federal Government. As the Committee with jurisdiction over revenue-raising measures, the Committee on Ways and Means thus evolved as the primary Committee responsible for international trade policy.

The Constitution vests the power to levy tariffs and to regulate international commerce specifically in the Congress as one of its enumerated powers. Any authority to regulate imports or to negotiate trade agreements must therefore be delegated to the executive branch through legislative action. Statutes including the Reciprocal Trade Agreements Acts beginning in 1934, Trade Expansion Act of 1962, Trade Act of 1974, Trade Agreements Act of 1979, Trade and Tariff Act of 1984, Omnibus Trade and Competitiveness Act of 1988, North American Free Trade Agreement (NAFTA) Implementation Act, Uruguay Round Agreements Act, and Trade Act of 2002 provide the basis for U.S. bargaining with other countries to achieve the mutual reduction of tariff and nontariff trade barriers under reciprocal trade agreements.

Revenue Originating Prerogative of the House of Representatives

The Constitutional Convention debated adopting the British model in which the House of Lords could not amend revenue legislation sent to it from the House of Commons. Eventually, however, the Convention proposed and the States later ratified the Constitution providing that “All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with amendments as on other bills.” (Article 1, Section 7, clause 1.)

In order to pass constitutional scrutiny under this “origination clause,” a tax bill must be passed first by the House of Representatives. After the House has completed action on a bill and approved it by a majority vote, the bill is transmitted to the Senate for formal action. The Senate may have already reviewed issues raised by the bill before its transmission. For example, the Senate Committee on Finance frequently holds hearings on tax legislative proposals before the legislation embodying those proposals is transmitted from the House of Representatives. On occasion, the Senate will consider a revenue bill in the form of a Senate or “S.” bill, and then await passage of a revenue “H.R.” bill from the House. The Senate then will add or substitute provisions of the “S.” bill as an amendment to the AH.R.@ bill and send the “H.R.” bill back to the House of Representatives for its concurrence or for conference on the differing provisions.

Membership on the Committee spans the nation. FairTax supporters will recognize the name of Rep. John Linder, the original co-sponsor of HR 25, the FairTax Act, as a member of Ways and Means.

Here are the Members of the 111th Congress, Ways and Means Committee:

Democrats

Charles B. Rangel, NY Chairman

Fortney Pete Stark, CA

Sander M. Levin, MI

Jim McDermott, WA

John Lewis, GA

Richard E. Neal, MA

John S. Tanner, TN

Xavier Becerra, CA

Lloyd Doggett, TX

Earl Pomeroy, ND

Mike Thompson, CA

John B. Larson, CT

Earl Blumenauer, OR

Ron Kind, WI

Bill Pascrell, Jr. , NJ

Shelley Berkley, NV

Joseph Crowley, NY

Chris Van Hollen, MD

Kendrick Meek, FL

Allyson Y. Schwartz, PA

Artur Davis, AL

Danny K. Davis, IL

Bob Etheridge, NC

Linda T. Sanchez, CA

Brian Higgins, NY

John A. Yarmuth, KY

Republicans

Dave Camp, MI

Wally Herger, CA

Sam Johnson, TX

◊ Kevin Brady, TX

Paul Ryan, WI

Eric Can tor, VA

◊ John Linder, GA

Devin Nunes, CA

Pat Tiberi, OH

◊ Ginny Brown-Waite, FL

Geoff Davis, KY

Dave G. Reichert, WA

Charles W. Boustany, Jr. , LA

Dean Heller, NV

Peter J. Roskam, IL

◊ current FairTax bill (H.R. 25) supporters

The FairTax Rate: a 23% tomato or a 30% tomato?
05/31/2007

As the FairTax gains more national attention, questions have again arisen about whether the FairTax rate is 23 percent or 30 percent. In the toxic environment that often accompanies public policy debates, FairTax.org has even been accused by some of misleading the public, even though full descriptions of "tax-inclusive" and "tax-exclusive" calculations abound on our Web site. We hope the following explanation puts all such questions to rest -- at last.

Let’s use an example to illustrate the difference between tax-inclusive and tax-exclusive tax rates.

Assume there is a worker named Joe who earns $125 and spends all of his earnings. Let’s further assume that the government requires him to pay $25 in taxes.

If the government put a tax on Joe’s income, he would earn $125 before tax and would have $100 after tax to spend at the General Store. Thus, Joe has to earn $125 to have $100 to spend. Joe would also have to file an income tax return.

If the government put a tax on what Joe spends, he would earn $125 and would have $125 to spend at the store. Of the $125 paid by Joe to the storekeeper, $100 would be for the goods he bought at the store and $25 would be taxes that the storekeeper would send to the government. Joe would not have to file a tax return, as the storekeeper sends the tax in to the government.

Either way, Joe pays $25 in taxes and the government gets $25 in taxes. With a tax on income, Joe pays the $25 directly to the government, and with the tax on spending (sales tax), he pays the $25 in taxes indirectly when he buys something from the General Store. The General Store sends the tax that Joe paid to the government.

We may report the tax rate as $25/$125 = 20 percent, which is the tax-inclusive rate (meaning that the tax is included in the base). Alternately, we may think of the tax rate as $25/$100 = 25 percent, which is the tax-exclusive rate (meaning the tax is excluded from the base). The 23 percent FairTax rate set out in HR 25/S 1025 is a tax-inclusive rate, as is the current personal income tax, whereas most state-level sales taxes are quoted on a tax-exclusive basis. For ease of comparison, FairTax.org gives the tax rate both ways. Both rates are relevant, since the FairTax is replacing an income tax system, and 23 percent correctly represents the tax burden compared to the current system.

To review some of the research that determined a 23% (inclusive) rate is correct, please read Taxing Sales Under the FairTax: What Rate Works? This paper is a collaborative effort of 5 respected and independent economists.

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