Keep Your Entire Paycheck. Make April 15 Just Another Day

Monday, May 02, 2005

Ownership of Choice

A lot has been said about President Bush’s use of the word “ownership” regarding Social Security reform. Well, it also applies to tax reform. If I recall correctly, we have a higher percentage of home ownership today than at any other time in American history. But home ownership is only the beginning.

With tax reform, specifically a consumption tax like the Fair Tax, Americans will have more money in their bank accounts. Without sounding materialistic, the only limit to what the individual can purchase is limited only by their bank account and personal desires. Sure, you can use credit to get more “stuff”, but that’s not all that I’m talking about.

An average family (usually considered to be a family of 4) making $50,000 a year will have $7,500 more spendable income. I don’t know about you, but we don’t bury money in a mayonnaise jar in the backyard. Our money goes to paying the mortgage, bills, car insurance, doctor bills, lights, phone, car loan, gas for the car, cable, clothing, and groceries. And of course, we do like to eat out once in a while, maybe see a movie, and take the occassional vacation. If you are like us, money gets tight sometimes. There is little room left for savings. And if there's an unexpected expense, forget it! Whether you are saving to pay off bills, put a child through college, put a downpayment on a house, or even take a vacation, it’s hard when you are living from day to day.

Here’s where the Fair Tax comes in. Take a look at your paystub. Look at the amount of money you take home. Now there are three other items I want you to look at. See the line that says FICA? And FICA Regular? You might recognize as Social Security and Social Security Disability. And Withholding? That’s what is withheld for your Federal Income tax. Add those three figures up. Let’s pretend that they total $350.00 each payday.

Now, imagine a day when those don’t appear on your paystub. What happened to that $350.00? Now look at your take home amount. It should be $350.00 more than it used to be. Wow! An extra $350.00? What’s the catch? There’s no catch. The Fair Tax bill was passed and signed into law by the President. You now have more money to spend.

That’s great so far. But, what about Social Security? What if I become disabled? What happens then? Well, let me ask this first and I promise I’ll answer your question. What are you going to do with that $350.00? Well, I’ll tell you what I would do. I’d take that money pay some bills, maybe make a mortgage payment, a car payment or something like that. Maybe I’ll just go and buy some clothes. Oh, the hot water heater needs to be replaced; I can do it now instead of waiting until it actually quits working (that unexpected expense, remember?). Maybe I’d put it into the bank and let it draw interest for awhile. Then maybe I’d take a vacation. Or pay off the car.

When you spend money, the retailer will collect a tax. They already collect state taxes, so it won’t be much more than just some more code written into the software program that calculates the tax. Tax will be collected if you buy a new item, whether it’s clothing, a house, a car, furniture, or a service such as dry cleaning. If you buy used, well, no tax will be collected.

I haven’t forgotten your question about funding Social Security. The taxes that are collected by the retailer will be sufficient to fund the Federal budget at it’s current levels, including Social Security and Social Security disability.

As it stands now, money is taken from your paycheck to fund the Federal budget and you have no say in how that money is spent. Under the Fair Tax you decide how much tax you pay by what you buy. You see, the Fair Tax is a consumption tax. You control the amount of tax you pay by what you buy. If you are Bill Gates or Teresa Heinz you have the money to buy a fully loaded, brand new Hummer if you choose to, and to pay the tax on it. If you are a middle American like most of the rest of us, maybe you want a new car, but can only afford to pay $25,000. Okay, you’ll pay tax on $25,000. If you choose to buy a used car for $25,000, you will pay no tax. That’s right, no tax. A consumption tax like the Fair Tax doesn’t care what how much money you have or what your tax bracket is (there will be no tax bracket), everyone will pay the same tax rate no matter what your income is.

Think of the person earning minimum wage. They will have more money to spend. Instead of slaving away barely making ends meet, the “working poor” won’t have Federal taxes taken from their paycheck. They get it all. Sure, they will have to pay taxes at the grocery store, but so does Bill Gates. The days of Teresa Heinz paying an effective rate of 12% income tax will be over. She will pay the same amount of tax as the single parent flipping burgers, waiting tables, or stocking shelves at the local grocery store who is barely making ends meet. How can it be more fair than that?

Getting back to President Bush’s concept of an “ownership” society: you will own your own money and you will own the freedom to spend the money you earn the way you choose to spend it. It’s not just about owning material things, but that’s part of it. You may save money to buy a house, or a car, or artwork. Ownership can be intangible: It might be a dream to start your own business or to go to college. It might be your dream to put your child through college. Your dream might be just to get out of debt: pay off the credit cards, the car, the house. This is ownership at it’s greatest. You own the right to make choices on what you do with your money.

How can it be better than that?


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