Taxes Suck 41% Out of GDP
ENOUGH IS ENOUGH
Federal, state, regional, and local taxes combined and including costs to collect, prepare, and avoid taxes eats up 41% of the GDP (gross domestic product) of the United States. Taxes for the Federal government alone consume over 25% of GDP. This analysis shows a reduction of Federal taxes to 23%. Fully funds every existing program, balances the budget, and pays off the $17.9 trillion debt. It includes destroying all 73,954 pages of IRS codes, rules, and ridiculous calculations; and fires all 97,000 IRS employees. It rids all companies, including non-businesses (i.e., non-profits, churches, local governments), and individual taxpayers, from the estimated $1 trillion burden of tax compliance costs.
Once implemented the plan creates a stimulus to the economy that makes any alternative look like “rearranging deck chairs on the Titanic.” To make it fair, every U.S. household gets a “prebate” check every month to reimburse for taxes paid, or not, on basic living expenses.
No federal, state, or local government has the right to know any citizen’s income.
Gross Domestic Product (GDP) 2014
National Debt May 2014 $17.9 trillion
Revenue or Cost
Taxes as % of GDP
Federal Taxes: Income, Payroll (Social Security, Medicare), Excise, & Gas
Compliance Cost of: Business, Non-Profit, Public Sector, & Individual Taxpayers
Subtotal - Federal Taxes & Compliance
Federal Deficit 2014
Subtotal -Federal Spending: Taxes+Deficit (i.e., Budget), & Taxpayer Compliance Cost
State and Local Taxes
Grand Total -Taxes & % Embedded in GDP
The FIX for Federal: Budget, Deficit, &Debt
FairTax -With Federal Rate 23% of GDP
Federal Budget w/Deficit w/o Compliance
(i.e., cost to run Federal Government for 1 yr)
Paid to States to Collect & Process FairTax
Delete/Remove IRS Cost
Prebate Monthly Payments to Families
116,000,000 US Households
Average Per HH Per/Month
Subtotal -FairTax Prebate &Administration
First Year Budget w/Deficit & w/FairTax
First Year (e.g., 2015) Deficit w/FairTax
Federal Budget Yr 2 (2016) with Zero Deficit
Surplus FairTax Revenue to Pay Debt 2015
Years Pay Off
GDP 5% Growth
Years Pay Off
GDP 10% Growth
Years Pay Off
The chart below correlates with the row numbers in the previous chart which lays out the dollars, numbers, plan, and rationale. This second chart supplies the narrative, explanation, and sources for each row in the first chart.
Explanation/Details from Above Matrix with Sources
GDP (gross domestic product) is all "domestic" goods and services sold or consumed within the borders of the U.S. (This includes foreigners selling stuff also). $17.33 trillion 2014http://www.usgovernmentrevenue.com/us_income_tax_revenue_10.html
GNP (gross national product) is all “national” U.S. citizens (whatever that means) goods and services inside and outside U.S. borders; this counts all the "foreign" stuff originating from within the U.S. borders.
Debt is the sum total all the years of excess spending above and beyond the revenues (i.e., taxes) collected. For the first time ever the national debt exceeds the GDP. Interest alone is $221 billion per year. http://www.usgovernmentrevenue.com/current_revenue
Federal taxes paid to IRS by all taxpayers. http://www.usgovernmentrevenue.com/current_revenue
Cost for Compliance and to Collect Income Taxes Ranges from $500 billion to over $1 trillion. In this analysis the difference is split at $750 billion. Even the lowered $750B equals 25% administrative overhead for $3 trillion taxes generated. This analysis drops total overhead cost to under $10 billion which is 0.003% (3/1000ths of 1%). The $1 trillion figure is closest to actuality when consideration is all inclusive: avoidance costs paid by companies, governments, and non-profits. Americans for FairTax estimate of $431 billion, is just private enterprise costs; nor does it include cost to comply with state and local taxes. Take $1 trillion ÷ $100,000 = 10 million jobs. This includes the guys and gals who wear those Statue of Liberty costumes and stand in the street waving at us to come in and pay some stranger to calculate our taxes. In addition to 10 million not-government/private business compliance jobs; some studies have estimated 40 million jobs directly reporting to a government agency or to a contractor of a government agency. Even cities, counties, and state governments and all non-profits have to comply with payroll, medicare, and income deductions. Just to illustrate one city pays $26,000 per year just to keep its payroll software in compliance with tax changes. Multiply that by a couple hundred thousand government, quasi-government, and non-profits and it adds up to another $5 or $6 billion.
Hidden Cost of Tax-Compliance $1 trillion --Estimated Cost for Businesses to comply $1 trillion
Lost revenue do to tax code complexity $0.452 trillion (½ trillion $s)
Subtotal is $3 trillion IRS collected taxes and $750 billion cost to taxpayers to pay their part of $3 trillion.
Deficit is the estimated shortfall for 2014. Better than the $1 trillion a couple years ago but unacceptable.
Taxes plus deficit equals the budget. Since President Obama has taken office neither he, nor Democrat controlled Senate, has passed a budget, which is illegal, but who cares. So each year’s budget becomes nothing more than the previous year’s spending plus 5% “cost of living” increase passed by Congress with a “continuing resolution.” The President and Congressional Democrats prefer this “illegal” practice as they never have to cut their programs and the President can just redirect funds to programs he likes. With a balanced budget amendment no spending would be allowed without a passed and signed budget.
Adding in the State, Regional, Tribal, and Local taxes. Shows the total government cost as portion of GDP.
Grand Total of all government spending (Federal, State, Local) plus the cost for businesses, all other tax reporting agencies, and us individuals to prepare and pay taxes.
Column Title and New Section Break
FairTax Act - H.R. 25 and S. In the 113th Congress H.R. 25 has 73 cosponsors and the Senate companion bill, S. 122 has 8 (as of 10 Dec 2013). Referred to House Ways & Means.
Repeal of 16th Amendment “Income Tax” is HJ Res 104 http://www.repeal16.org/
Federal Budget which is in effect the total amount of taxes received and adding in the over spending which is the deficit. This is the actual total cost to run the Federal government for one full year. Compliance costs are what taxpayers must fork over for someone to prepare their taxes -a cost not included in the budget.
Paid to States to Collect & Process FairTax. The ¼% (0.25% of 1%) paid to the states is $10 billion (which is less than the IRS cost of over $13.5 billion) however this is like a block grant funding bonus to states as they already have, in their respective budgets, sales tax collection and processing agencies.
IRS is gone under this analysis therefore the “budget” expense can be reduced by $13.5 billion a year, also gone are 97,000 IRS employees. Note: the IRS claims their “budget” is around $12.5 billion which is technically accurate. But what they do not tell you is that there is an additional $1 billion of fines and other revenue sources that is collected and used to pay for additional expenses not included in the $12.5 approved budget. http://www.irs.gov/pub/newsroom/budget-in-brief-fy2013.pdf
Prebate (see table below). The “Prebate” untaxes spending up to the poverty level, literally untaxing the poor. NOTE: there are 116 million U.S. households according to official BLS; which by the way does not include 8 million individuals living in group quarters (students, military, et. al.,). The estimate of $400 average Prebate per household per month is based on 116 million households at the average of 2.56 members per household. http://www.census.gov/prod/cen2010/briefs/c2010br-14.pdf Table 2, Page 5.
Under the “Prebate” a single parent with 2 children (3 people) get $374/month; a married couple with 1 child (3 people) get $518; average is 374+518=892 ÷ 2 = $446/month for 3 people --average HH is 2.56 ÷ 3 = 85% * $446 = $379.10 (rounded to $400 for cost estimation). http://www.fairtax.org/PDF/FairTaxOverview.pdf
While $557 billion prebate and administration seems exorbitant remember the actual administration overhead is less than $10 billion. The remainder is refunds back to taxpayer families as compensation for the taxes paid on basic living expenses. The $10 billion goes to states as a bonus (see row 14 above).
Year one has a shortfall of 1.25% (i.e., one and one quarter percent) around $53 billion deficit. After that ever year is a surplus which increases with GDP growth.
First full year after implementation of FairTax results in small deficit. Less than 1/10th of 2014 deficit. For purposes of simplicity rows 21, 22, and 23 assume zero deficits and zero % budget increases.
Budget for simplicity is not inflation adjusted. Any increase in budget could be partially covered by the reduction in interest payments on the debt, $221 billion 2014. GDP growth will clearly offset budget growth.
In the second year after FairTax the surplus of over $421 billion is 100% applied to debt would take 42 years to pay off the $17.9 trillion. However, as can be seen in rows 22 and 23 below. With GDP growth the surplus compounds making is possible to pay off the debt in a little as 15 years or even 10 years.
Current US GDP Growth Rate: 3.72% --US GDP Growth Rate for Mar 2014
Between 1929 and 2014 GDP Rate per year: http://www.multpl.com/us-gdp-growth-rate
Min: -45.32% (Dec 1933)
Max: 118.27% (Dec 1944)
Annual percentage change in US GDP, current dollars (not inflation-adjusted)
Zero debt is possible in as little as 10 years if GDP continued at 10% growth -with a balanced budget.
Enough is Enough Already!!!
Please, anyone viewing this analysis, don’t tell me, with a straight face and your “Ivy League” liberal arts college graduate degree, you’re going to defend the current income tax debacle? If so please tell the world specifically which of the 75,000 pages/sections of IRS code you are planning to eliminate? If you don’t know specific pages, or sections, could you at least commit to eliminating say 1,000 pages at random? I’m proposing the elimination of all 75,000 pages and all 97,000 employees of the IRS and never allowing them back, ever.
Even “Food Stamp” (i.e., SNAP) recipients pay 41% embedded taxes on all food purchases; why? So some rich dude (or dudette) can take credit for, and even brag about, paying “his or her” taxes; which we now know they just took from SNAP folks and passed them through to the government.
Under FairTax businesses do not pay taxes on “Business Inputs” which is current and capital expenditures that businesses acquire to run their operations and to provide goods and services, such as vehicles and fuel, building materials, computers, office furniture and equipment, and telecommunications services.
For simplicity purposes this analysis uses “current dollars” (not inflation-adjusted) also know as Constant (or Real) Dollars. http://en.wikipedia.org/wiki/Constant_dollars
Also not used are Chained dollars (e.g., chained 2009) http://en.wikipedia.org/wiki/Chained_dollars
The current income tax is considered "progressive" (lowercase "p") meaning rich pay more and lower income pay less, or nothing, or even make money -with the “Earned Income Credit” low income can get back more than they paid. Most other tax plans (including “flat” tax) are considered "regressive" meaning low incomers are disadvantaged because they have to pay for food, housing, et.al. with their 80% which is a lot less in “real” dollars. In order to make the FairTax “fair” and not regressive the creators developed the prebate. Nobody pays taxes on basic living expenses.