Interesting Discussion on the FairTax Online

Kevin Hassett, Resident Scholar at the American Enterprise Institute, published an article on TCS (Tech Central Station) the other day titled, "Tax Reform 101." His major points are: Consumption is a better base than income, a value added tax is a consumption tax and consumption tax proposals are just VATs.
FairTax enthusiasts will immediately see what caught my attention and led me to the online feedback area. What follows here is the feedback as it has developed over the past four days:
Ken Re: But in the real world: Message: While I'm in favor of a consumption tax the type of proposal described here scares the excrement out of me. In the real world of politics, such a scheme would almost certainly evolve (quite rapidly) into something closely resembling the current income tax system, with a VAT or national sales tax piggybacked on it.

The only way I could support a federal consumption/sales tax would be if the constitution were ammended to remove Congress' authority to tax income. Without removing this temptation, the 'purely' redistributive tax on wages would likely prove to be an irresistable temptation to legislators whenever the public complained about the level of the sales/consumption tax. In the end, we'd probably have a VAT extracting sufficient revenue to support current government spending, with a wage/income tax to boot.

Assuming that redistribution were required (after all, why would Paul support anything that didn't include his getting some of Peter's meney?) there are safer ways to accomplish it. One way would be to send every household a monthly check equivalent to the tax that they would be paying on some basic income level, e.g., twice the poverty level. Not only would the government not be taxing people who consumed less than the threshold, but would in fact be paying them a stipend.

Dietmar: Re: In the real world: Message: Redistribution is only required if you're a socialist. In a really free society, socialists could voluntarily donate much of their income for redistribution. Micheal Moore suggests 70% as a good number.
I kind of like the VAT idea because it means that everybody who consumes something has to contribute. Liberals hate it though because that would mean that even illegal immigrants would be paying taxes when they buy their cell phones, cars, etc.

Veritas: Re: But in the real world: Message: Good post, but I'd also exempt the courts from ruling on it as well and mandate any increasesbe left to direct voter approval.

Sunnye Re: But in the real world: Message: Judging from what you have said, each of you wants the FairTax.

It repeals the income tax and the embedded taxes in products and services (retailers pass along the taxes they pay to the consumer embedded in the price of the products they sell).

FairTax taxes only new goods and services, not used ones. It provides a $178 a month rebated to every social security card holder so that no one pays tax on goods up to the poverty level, thereby exempting the poor.

It would make the USA the only nation in the world that doesn't tax productivity, increasing our appeal and strengthening our trade in International markets.

The VAT is just another embedded tax, added to the employee taxes and corporate taxes businesses already pay and pass along to customers. That's why it didn't work in Europe.

Learn more about FairTax at www.fairtax.org

TJ Jackson Re: But in the real world: Message: Sounds good but I wouldn't exept anyone at any level. If all pay all feel the same pain. It makes it harder to raise taxes and promotes more effective government.

Scott Kwilinski Re: VAT Message: I've always preferred a pure VAT so the government can get out of the business of knowing everything about everyone's income. The cost of enforcement is astronomical. Every financial institution has to generate reports for every customer and the government for even miniscule amounts. A simpler tax code leads to simpler enforment and the total drag on the economy is less. Also with a VAT all this IRA, 401K, College fund, Health Savings Account junk becomes moot. Save at no cost. Get taxed on spending. Very simple.

Sunnye Re: VAT Message: Well, the VAT is more complicated than that. It's imposed on top of the income tax, and new taxes are added at each stage of product development instead of at the end. Those taxes, along with the FICA taxes and corporate taxes the manufacturers and middle men pay are tacked on to the price of the product and passed along to the consumer.

The best solution to all this is a national retail sales tax that gets rid of the income tax, corporate taxes, etc. and taxes only the final new product at the point of sale. It's called the FairTax.

Check it out at www.fairtax.org or www.us4fairtax.blogspot.com

TheOneLaw: Two major problems with VAT Message: The first problem is psychological because every individual must feel that they are being treated fairly.

The article states that 'Since a VAT is like a sales tax, and since poor people on average spend almost all of their income, poor people would face a significant tax hike if the U.S. adopted a VAT.'

I do agree that people who have less money, and in turn spend less money, should pay less in taxes. This is, by definition, already built in to an individual consumption tax. But everyone, rich or poor, must pay the same rate on every new product and every service that they purchase. If you start to provide exceptions or you provide any form of rebate then one group feels that they are getting something from the government(other citizens) for nothing and the rest feel like they are getting shafted. No matter what controls are written into the code the tax percentage will grow and more exceptions will be added by legislators trying to show preference to their group for every possible excuse known to man (like it is now).

For everyone to feel that the taxation system is fair we should choose an consumption tax that taxes each individual's consumption of new products and services equally. Then at the same time we must attempt to equalize the per capita spending for government provided social services to the local level. Equal taxation of consumption and equal per capita spending would provide the fairest and most non-political re-distribution of wealth.


The second problem with a VAT is that it only taxes legal businesses. A very large portion of our economy is in the black market which yields very high profits to the people providing these products and services but these people do not pay any income taxes. Whether you want to try to police these black market products and services that these people are providing does not matter in this discussion, they will not recieve benefit from that income until they spend it and most of this spending will be legal and they will have to pay the consumption tax.

A proper Individual Consumption tax has many benefits:

- Eliminates all other forms of taxation that politicians use to reward groups they like and punish those groups that they do not like.
- Promotes true fairness in government treatment of citizens.
- Rewards saving and investment.
- Promotes Caveat Emptor (buyer beware and choose purchases carefully).
- Punishes Opulence and luxury spending by those who cannot afford it.
- Promotes recycling and conservation of resoures by not taxing used products.

If the United States (or any other country) adopted an individual consumption tax and equalized per capita government social spending each citizen would be treated as fairly as possible by the government. It would lead to a booming economy, high investment from abroad, but also a marked advance in civilization (and I don't think I am overstating the possibilities).

As citizens of the United States we should stop trying to gain advantage for ourselves and 'our group' over another and instead just try to treat everyone that is not trying to hurt others equally, and it will benefit everyone.

Thanx,

Kevin

Sunnye Re: Two major problems with VAT Message: Kevin,
You just described the FairTax.
In addition, however, FairTax gives a rebate to every social security card holder in the US so that no one pays any tax at all up to the poverty level. The poor are therefore exempt from paying taxes.

It makes the US the only country in the world that doesn't tax productivity. Think how desirable that makes us in international trade. All those jobs lost coming home!

Do look into it in detail at www.fairtax.org or www.us4fairtax.blogspot.com

TheOneLaw Re: Two Major Problems with VAT
Message: Sunnye,

I have been interested in the FairTax idea for a few years now and have followed the discussion closely but do not agree with all of the FairTax proposal. You wrote that the 'FairTax gives a rebate to every social security card holder in the US so that no one pays any tax at all up to the poverty level' and that is the one aspect of the FairTax that I disagree with. The problem with the rebate is that it adds complexity and opens an opportunity for politicians to change in the future to the benefit of their preferred group. As I wrote in the comment that you responded to, every citizen must believe that they are paying something for the government services they are recieving or they will never stop asking for more government and we will be back in the same situation we are now.

With a fixed rate individual consumption tax (sales tax)those that have less money to spend (the poor) would pay less in taxes but would still pay the same percentage as someone that has significantly more money to spend. The person who consumes less pays less and the person who consumes more pays more and everyone pays something for the government at the same percentage of consumption. This would be the best way to treat all citizens equally.

Thanx for your feedback,

Kevin

Although I responded to this, Kevin has not posted it.
Here it is:
Thank you, Kevin, for discussing this with me.

I find in talking to people all over the country about the FairTax, two things always come up: first, how can we best help the poor and two, will people stop giving to charities. I have been surprised (and dalighted, actually) that almost everyone seems to care about the disadvantaged. (That's evidenced, of course, by Americans' generosity in emergencies.) So I really don't see people feeling that they're getting shafter, especially since they, too, get the rebate. Everyone does who has a valid social security card. Equal taxation of my son, a severely retarded and disabled adult whose income is less than $12,000 a year, would be punishment. Having all his benefits tax-free gives him a chance.

Trying to get Congress to equalize per capita spending will effectively kill any reforms you try to pass. That's another issue that needs to be battled in another forum. Like adding amendments to a bill, you can kill a proposal by adding peripherals to it. And that's a fight that definitely should not be fought along with thte tax issue or we'll never get anywhere. And that alternative is to keep what we have.

Of course, we can always change Congress at the voting booth.

The people who produce black market products have to eat, sleep, and dress. They have to have transportation (and most of them prefer the most expensive transportation of all). They have to purchase the tools and materials to either produce, package or sell their products and with the FairTax, in every case they would be paying the tax. They may get away with some, but certainly not the $300 Billion a year that the IRS can't touch and that doesn't count the money the FairTax would bring in from 40 million foreign tourists a year and who-knows-how-many illegal immigrants. I suspect we'd have a black market (we always have had for one thing or another) but it would be significantly smaller than the benefits gained by using the FairTax.

The main problem with the consumption tax, in my mind, is that it simply doesn't get rid of the income tax. It's one more tax added on to what we already have. Even if you reduced the income tax rate, you still have the rules and the fact that the IRS is not controlled and not accountable to anyone. The IRS has severely abused it's privileges and there's no reason to assume they would ever change their ways.

The other problem I have is making the poor pay taxes at all. They need a chance to get ahead.

One great thing about the FairTax is that it does tax the rich more than the rest of us. They buy more expensive homes, cars, furnishings, clothing, vacations -- everything -- because they can afford it. The social stigma of second-hand will always be there and you can depend on the rich taking great pride in buying new things because those who make less money can't afford to. Why else would anyone ever want a limousine? It's that kind of thinking that plays straight into the FairTax coffers.

You say, "As citizens of the United States we should stop trying to gain advantage for ourselves and 'our group' over another and instead just try to treat everyone that is not trying to hurt others equally, and it will benefit everyone" and I agree. But that is not human nature and above all, we have to deal with human nature. So let's make the best of it and pass the FairTax. The FairTax comes closer than any other proposition on the table to doing what you suggest.
Sunnye
The discussion also runs under another heading, "Tax reform 101"

Whooper Re: Tax Reform 101 Message: In order to discuss tax reform one must correctly frame the issue. It is this: how to provide revenue for the operation of government. It is not how to stimulate the economy; it is not how to raise revenue it easily; it is not how to raise revenue painlessly. Second, one must address how to raise revenue fairly. This involves identifying the beneficiaries of government. In the process of the latter one better defines the purposes of government. For example if the purpose is to transfer wealth then fairness is thrown out the door. In which case stimulating the economy, easy and painless will win. If the purpose is to provide infrastructure then fairness will dominate and lead one to the conclusion that a progressive income tax is the fairest. It targets those who accumulate wealth from use of infratructure and nature's resources.

Sunnye Re: tax reform 101 Message: The FairTax is revenue neutral -- that means it funds the US government at present levels because it taxes everyone fairly and recovers the $300 BILLION a year the IRS says it can't get to.

FairTax is fair because it imposes a visible tax on only new goods and services. Pre-owned and used goods are not taxed. The poor pay no taxes at all because everyone gets a 'prebate' at the beginning of each month -- $178 per social security card holder -- to assure that no one pays taxes up to the poverty level.

Prices go down by 20% to 30% because the income tax, employee taxes and business taxes are repealed by the repeal of the income tax. Walmart has promised to reduce prices by more than 20% as soon as passage of the FairTax is announced.

Learn more at www.fairtax.org or www.us4fairtax.blogspot.com (to comment)

Nat Re Fair Tax National Sales Tax Message: I'm surprised there's been no mention of a national sales tax yet. There are a number of advantages to such a scheme. For one thing, in a democracy it is essential that the citizenry be aware of as much as possible if the people are to be able to make informed choices. With a sales tax, and only with a sales tax, everyone will be aware of just how much tax he or she is paying. Further, there is absolutely no government intrusion in private life--no forms to fill out, no need to keep track of income and expenses beyond one's own personal requirements. A VAT hides the tax and increases the wholesale cost of goods. A sales tax minimizes that cost, making US made goods more competitive. Because a sales tax is out in the open, legislators can't increase it without the public knowing about it. Everyone who buys any new good or service pays the tax, so the entire underground economy gets covered.

The Fair Tax proposal includes a 'prebate' that's sent to every registered household each month in anticipation of the sales tax they'd have to pay if they spent at the poverty level. This makes it progressive and does it automatically, without any bureaucratic rule making. There are a great many benefits to this particular, much studied, proposal which can be found at http://www.fairtax.org and I encourage study at that site!

Nat.

John F. Re Fair Tax National Sales Tax: Message: I think Nat said it very well. A national retail sales tax, of the type proposed by the Fair Tax people, has many advantages over an income tax or VAT. To my mind, the primary advantage is that the tax is visible to every buyer at the time of purchase.

In Europe, where the VAT is common, it is impossible for the consumer to reliably differentiate tax increases levied quietly by the government from the effects of inflation. I, for one, do not wish to provide politicians with the temptation of a hidden tax that they can ratchet up at will.

The Fair tax does relieve the tax burden on poverty-level households, but it does not re-distribute income, which I count as a plus. Income redistribution is a socialist theory which has only acted to dis-incentivise the more productive members of society, leading to a smaller pie for all. Another name for income redistribution is 'fairness'.

John F

So the discussion goes on. If you'd like to join in, the article is at http://www.techcentralstation.com/042605B.html. Just click on the feedback bar at the bottom of the piece to get to the feedback forum.

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Book Review: America's Best Kept Secret by Al Ose

Even if you already know and support the FairTax, this book is a must-read.

First it describes how the FairTax came about, a question that comes up often in discussions! This is no fly-by proposal. On the contrary, it is the result of a 10-year study by major economists from universities like Stanford, Harvard, Rice, MIT, and more. The book names names: Who paid for the study and why, what they're doing now and what they plan to do.

Americans for Fair Taxation has a lot of information on their website but this book has even more. Here you'll find a collection of articles, charts (rebate calculations,comparisions of all kinds, estimates, costs, etc.), letters, studies and results.

There's a great chapter on the "Impact of the FairTax on Interest Rates" that will make everyone sit up and take notice,

There are sections on how the FairTax will impact businesses like home builders, financial services, mining, oil and gas, and more -- even timber-related industries!

Most amusing and delightful is "The Twelve Days of a FairTax Christmas" beginning on page 56 and written by a FairTax staff writer.

FairTax, by giving every worker his/her entire paycheck, makes every day Christmas Day.

In short, this book tells the reader who needs the FairTax and why, who are the people behind it, what the experts say about it, gives the impact of the FairTax on the economy and various organizations and businesses and chronicles the history of hearings already held on the subject.

If you think you know all there is to know about the FairTax, this book will prove to you that you don't.

If you don't know anything about FairTax (and if you're a taxpayer you owe it to yourself and your family to find out), this is a reliable, complete source of information

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The Manipulative and Powerful

Part I of II

Herman Cain’s new book coming in May, titled “They Think You’re Stupid,” is a great way to capture the politicians’ take about the constituents of this country. Soon, they will have to wake up to the fact that we are watching. I would say the reverse is true, but it is not. Politicians, especially on the left, are not ignorant; they just want to maintain their power. What a waste. There are so many more things in life worth striving for.

Liberal politicians know that the more people need them, the more they can control the citizens and their money. For example, we have now seen that the leftist politicians are fighting tooth and nail to keep their hands on YOUR money, like the FICA taxes that are taken out of your paycheck every week. They know that if the government no longer had that power, they could no longer use the phrase “If you elect them, they will take away your Social Security.” What a shame that would be; I’m not getting it anyway. Isn’t Social Security my retirement account? Not even close, especially since the government isn’t saving or investing anything, because it is going towards paying the current treasury deficit.

Another thing that politicians like to do is to not take a stand on anything, until they absolutely have to. That is why the people of this country need to continually let their representatives know what they are thinking. Just today, Mr. Kerry (Remember him), said "Where's the president's plan? We've been wasting these months on private accounts without any real discussion of solvency." Never mind that the Executive Branch of the US government does not legally come up with a bill. When did the legislative duty of the Congress escape the halls of the Capitol? Why does the other party dislike Bush’s “ownership society” ideas so much? It’s because they want to have ownership: ownership of YOUR life and ownership of YOUR money.

Social Security policies are certainly not the only place this comes into play. Many politicians are gripping tight to the idea that control can come from manipulating the current tax code. The lobbyists in Washington have a noose around the necks of the politicians because of the money that they “donate” every year, for giving their clients certain tax breaks and loopholes. That’s fine, right? No, because that puts more of the burden on you, for the excessive spending of the government.

So what do the politicians do to control the tax code? They continually tweak the code and tell the poor that they are looking out for them, when they do it. There is a plan to end all that. It is the FairTax. The FairTax plan is the single best tax reform policy ever to come across the floor in Washington. It is literally the most researched tax reform plan to date, with more than 75 legitimate economists recognizing it as the best plan.

Although they know that it is a great plan, most politicians still want to keep that control, but disguising it by telling everybody that the plan is horrible. On September 23, 2004, Rep. Rangel (D), Rep. Pelosi (D), Rep. Clyburn (D), and Rep. Spratt (D) released a report stating that the FairTax, among other false notions, would be a vast increase on middle-income taxpayers, particularly families with children, because it would repeal all tax deductions and credits that benefit families, including the child credit, and eliminate all progressivity from the tax code. Not only is all of this downright inaccurate, but they are intentionally misleading the people of this country; especially the most vulnerable – low-income families. Well, they must have a better idea, right? Wrong! They don’t have any suggestions, but continue to manipulate the poor and uneducated who don’t realize what or who they are really voting for.

Let us delve deeper into their report, the next time around, in the next few days. In the meantime, please visit www.fairtax.org, do your independent research, and contact your Congressperson, very soon. But remember, a national sales tax will not be fair, unless it is the FairTax.

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Flat Tax = VAT = FairTax? No Way!

A value added tax (VAT) like they have in Europe is the same as the FairTax and they are the same as the flat tax, you say? The three are synonymous?

Not on your life.

It's easy to confuse them at first glance; all three are consumption taxes. That, however, is where the similarity ends and there the danger begins.

The flat tax, as proposed by Sen. Armey and his supporters adds a consumption tax to the present income tax system. Even if the income tax should happen to be reduced significantly, the system would still be in place with all its rules and regulations, paperwork and time wasted filling out forms.

The Value Added Tax is quite another matter still. It's another hidden tax, like the ones embedded in prices by the income tax structure we have now.

Under our current tax structure, each entity that handles a product adds a portion of the taxes it pays to the price -- an estimated 20% to 30% of the prices we pay for products. The VAT is levied at each stage of production, so as products move through the various stages of production and distribution, a company pays taxes on only the value it adds. And that's on TOP of the taxes -- employee taxes, etc. -- the manufacturers and retailers already add to prices. France, Germany and England are examples of countries that tried that and discovered what a drag it was on their economies.

Another downside to the VAT is that it's invisible, like the embedded taxes. The tax burden is buried deep in the price of products. When a consumer buys a product, s/he doesn't know how much of the price is really a passed-along tax. As a result, the VAT becomes very easy to increase.

The FairTax, unlike the flat tax and the VAT, is visible, simple and gets rid of the income tax. It taxes only new products and services so you know exactly what you're spending on taxes. You get a rebate each month, which means you're not taxed at all until you begin spending above the poverty level. FairTax broadens the tax base and strengthens the US position in international trade by making US the only country that doesn't tax productivity.

The elderly no longer are taxed three times on their social security benefits and social security is strengthened because the bills, S 25 and HR 25 specify that social security funds are directed into a trust.
With the flat tax and the VAT, the middle class and poor are super-taxed and the evasion loopholes for the rich are still in place in the income tax code.

With FairTax, everyone pays the same. The wealthy buy more expensive cars, homes, clothes, vacations, so they pay more tax. The poor get a rebate (as do the rich) but pay no tax, so they can save and make their way up. Everyone wins.

But remember: The FairTax by any other name is not as sweet.

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The Fair Tax: The Great Equalizer Part 2

One of the things that liberals take greatly to heart is that the wealthy (aka the Evil Rich) don’t pay their fair share of taxes. The Evil Rich, cry the liberals, have the funds to pay professionals to do their taxes and find loopholes and tax havens to shelter their money. This is true, at least to a certain extent. It would certainly explain why Teresa Heinz Kerry (if she’s using Kerry this week) paid less in taxes last year than I did (she made considerably more than I did, by the way, but paid a lower percentage). Ms. Heinz is not the only one; most of the Evil Rich hire tax professionals to do their taxes for that very reason. And, by the way, the Evil Rich are not the only ones to pay professionals. I have paid a professional to do my taxes for the last three years. I want to pay the very least in taxes that I legally can. Most of my friends also pay professionals, and we are not wealthy by any monetary definition.

I don’t know about you, but when I have extra money I put it into a Mason jar, hermetically seal it and bury it in Funk and Wagnall’s backyard. Oh, sorry, I think I was channeling Johnny Carson for a moment. No, I don’t bury it in the backyard. I don’t put it under the mattress, or in a cookie jar, or anything like that. I either spend it or put it in the bank. In either case, it goes into the economy.

If I spend it, it goes to buy clothes, food, gas for my car, pay bills, or maybe I’ll replace something in the house, like the stove or hot water heater. If I bank the money, it doesn’t go into the bank with a sticky note on it saying it belongs to me. The bank makes a notation that I deposited that amount of money into my account. It’s a promise that if I want that money the bank will give it back to me. If I’m lucky I’ll also get a little bit extra as interest. The bank’s way of saying, “thank you for letting us use your money.”

The bank takes the money that I deposited and puts it with the money all the other bank customers deposited and gives it to other people. Sometimes as loans, sometimes to other customers making withdrawals, sometimes to their employees as salary.

Now, back to how the Fair Tax is an equalizer. If I decide I need another car I go to the dealership and pick out the car I want and they’ll tell me how much the car costs including tax. Now, under the Fair Tax plan, I have two options. If I can afford to buy a new car, I’ll pay tax on it. (Under the Fair Tax, tax will only be charged on new items sold by the retailer to the individual.) If Bill Gates wants another car, he’ll most likely buy new (you think?). He and I will pay the same tax rate on our cars. He will probably buy a much more expensive car than I will. The bottom line (so to speak) is that we will pay the same rate, even though the tax rate on his car will be much higher than mine. If for some reason we pick out the same car, we’ll pay the same rate. Uh, oh…we pay the same rate. Is that fair? Yeah, it is…because we’re buying the same car. If he buys a fully loaded Hummer and I buy a bare bones Toyota, we’ll still pay the same tax rate. See the difference? The dollar amount paid in taxes will depend on the cost of the car.

We both have another option. Either or both of us could decide to buy a used car (my personal favorite option). In this case, neither of us will pay taxes because the first owner has already paid the taxes on the car. If the car costs $10,000, there is no tax, the cost of the car is $10,000 (I’m sure you will still pay dealer prep and that kind of thing, but you will not pay sales tax on the car).

Getting back to the tax havens and loopholes that the Evil Rich have access to that you and I don’t, well, they won’t need them because they won’t need to shelter their money from the IRS. But, they will pay the same tax rate on whatever they buy. Just like you and I would do under the Fair Tax. Not only you and I and the Bill Gates of the world, but anybody who makes a purchase. That includes tourists from other countries, illegal immigrants, and the underground world where people don’t have traditional jobs with paychecks and deductions from those paychecks. The drug dealer would pay the same rate of sales tax for his tricked out Hummer as the cop who buys a Toyota.

Can it get any fairer than that?

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Tiny Nations Home To Trillions

If the government was to enact the FairTax, all of this money would come home to the United States. In addition, the evaders that take advantage of the system will finally contribute to the services of this country. This is an example of making liars and cheaters out of normal people.

(Christian Science Monitor) This story was written by David R. Francis.
--------------

Although they have only 1 percent of the world's inhabitants, they hold a quarter of United States stocks and nearly a third of all the globe's assets.

They're tax havens: 70 mostly tiny nations that offer no-tax or low-tax status to the wealthy so they can stash their money. Usually, the process is so secret that it draws little attention. But the sums - and lost tax revenues - are growing so large that the havens are getting new and unaccustomed scrutiny.

For example: When London's Tax Justice Network (TJN) reported a month ago that rich individuals worldwide had stashed $11.5 trillion of their assets in tax havens, it caused a fuss in Europe. "Super-rich hide trillions offshore," blazed a British newspaper headline.

Although that report received little notice outside Europe, there are rumblings of concern in the United States. That's not surprising. Nations lose an estimated $255 billion in tax revenues a year because of the havens, according to TJN. The US alone probably loses $60 billion a year, a tax expert estimates.

The loss hits not only prosperous industrial countries, but also developing nations. As a result, dozens of church groups and other nongovernmental organizations concerned with world poverty are joining tax reformers in what will probably become a major political battle. They aim to stem the outflow of money from poor nations into tax havens - an outpouring that may exceed today's global foreign aid of some $60 billion a year.

"If we are serious about reducing poverty, one of the first things we need to tackle is an international financial system run by the rich, for the rich, at the expense of the poor," states David Woodward, director of the New Economics Foundation, a London think tank.

Corrupt officials in poor nations, illegally, and multinational corporations, mostly legally, siphon huge amounts of money into bank accounts and shell companies in 70 tax havens, such as the Cayman Islands, Bermuda, and Jersey.

"It's going to be the next major issue," forecasts Lucy Komisar, a New York journalist writing a book on offshore banking. She compares the drive against tax havens with the civil rights movement of the 1960s, in which she participated, and the feminist and environmental movements of more recent decades.

Ms. Komisar helped organize a meeting on Capitol Hill April 7 to get an American branch of the TJN going. Representatives of several members of Congress, the AFL-CIO and a few other unions, several prominent tax research groups, and the United Church of Christ attended. About a dozen well-known activist groups were also present, including Public Citizen, Greenpeace, and the National Council of La Raza.

By cracking down on capital flight and corruption in developing countries, "we wouldn't have so much poverty in the world," says Robert McIntyre, executive director of Citizens for Tax Justice. He offered at that meeting to find funding for the TJN group in the US and recruit a paid director.

Not everyone sees it this way. The Center for Freedom and Prosperity in Washington, for example, sees tax havens as "an escape hatch for overburdened taxpayers." It relishes "tax competition" between nations. The center also argues that bank secrecy in countries like Switzerland can protect the money of those who face persecution by repressive regimes.

The tax-haven numbers in the TJN report were calculated by a British research firm from conservative sources - such as Merrill Lynch's "World Wealth Report" and the Boston Consulting Group's "Global Wealth Report." The trillions of dollars reported don't include money parked in tax havens by companies - probably also a massive sum.

There are about 3 million shell companies (set up largely to duck taxes) in offshore tax havens, Komisar reckons. These tiny tax havens hold 31 percent of total world assets and 26 percent of the stock of US multinationals.

"As our economies have globalized, our tax systems remain nationally based and measures that should have been put in place decades ago to improve international tax cooperation have not been put in place," says John Christensen, international coordinator in London of TJN. "So the tax burden has been shifted from those who can afford it to middle- and low-income households, and from businesses to working people and consumers."

In the late 1990s, industrial-nation negotiators reached an agreement to pressure tax-haven countries to stop facilitating money laundering, drug dealing, and tax evasion. The deal was championed by the Clinton administration. But it was squashed by the new Bush administration, keen for tax cuts.

Then came 9/11 and a recognition that terrorists and drug dealers use the same international finance channels as tax dodgers. So the Bush administration "has become less strident in its support for bank secrecy and other nondisclosure policies," notes Mr. McIntyre.

Now, a pioneer opponent of tax evasion through tax havens, Sen. Carl Levin (D) of Michigan, has joined with Sen. Norm Coleman (R) of Minnesota to sponsor the Tax Shelter and Tax Haven Reform Act. It would enable the Treasury secretary to designate a tax haven as "uncooperative" with Internal Revenue Service investigations. Though not a panacea, the bill, soon to be reintroduced in the current Congress, would give tax investigators a weapon: Income from such designated tax havens would lose some tax advantages.

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Coming Soon To A Congressional Committee Near You

Ever heard of a "refund loan facilitator?

What about an "enrolled agent?"

Well, folks, those are -- guess what -- new jobs defined in a new piece of legislation before the US Senate. It's called S. 832, "The Taxpayer Protection and Assistance Act of 2005, a bill to amend the Internal Revenue Code of 1986 to provide taxpayer protection and assistance, and for other purposes."

Now that doesn't sound so bad, does it? Except the average taxpayer is going to look at "for other purposes" with an "uh oh" reaction. And that reaction is an appropriate one.

On first impression you might think "Oh, the government is going to protect the US taxpayer? From the IRS? After all, they do have the right of search and seizure if they think you've paid them too little or not at all. Or maybe they're going to protect the taxpayer from prosecution for making mistakes because of an incomprehensible tax code?

No such luck.

S. 832, a bill that in itself is evidence that Senators and their aides have no idea of what their constituents need and want, expands the tax service by requiring education, testing and licensing of tax preparers. It calls for the establishment of "clinics" for tax preparation for the poor.

That's not so bad, you say? After all, tax preparers need to know an awful lot, especially because in many cases if they make a serious mistake, we go to jail. That's true, they do need careful traning, but the current code is so unwieldy and contradictory, and it's changed so often (like in this bill, for example) that no one can actually learn it.

Of course it adds another layer of bureaucracy (and cost) to the IRS, creating the office of "Director, Office of Professional Responsibility." And nevermind that it adds a few hundred more pages to a tax code that is already 60,000 pages long. The IRS already costs the taxpayer billions of dollars a year -- this bill just adds to the burden.

The bill also establishes clinics where tax preparers make out income taxes for people who shouldn't have to pay taxes in the first place -- the working poor. It requires all tax preparers to take training in the complicated tax code and to continue that training. The tax preparer who doesn't work pro bono for the poor (at the cost of the US government) will, of course, pass those training fees along to the taxpayer.

A "refund loan facilitator" is the person who sends the prepared tax form to the IRS via e-mail. Presumably the working poor don't have computers.

Specifically, the bill contains provisions for return preparation clinics for low-income taxpayers, clarification of enrolled agent credentials, regulation of income tax return preparers, regulation of refund anticipation loan facilitators, and taxpayer access to financial institutions. The provisions regulating income tax return preparers state that currently unlicensed preparers will have to take an initial competency exam. Thereafter, they will be able to maintain their eligibility through continuing education. There are penalty provisions for failure to comply with these regulations. The proposal also directs a public awareness campaign to inform the public of the requirements that any compensated preparer of tax returns must follow.

Bill Clark, a self-described tax preparer and avid FairTax supporter, says, "One of the things that has bothered me about it, it does not seem to apply to IRS personnel who answer tax questions over the phone. As a tax preparer, I would have to be "licensed" to give advice whereas the IRS phone critters (temps in some cases) would not. And we all know how accurate their advice is."

"Also," he adds,"while increasing the operating cost of the IRS, it would encourage tax preparers to increase their fees for being 'IRS certified' (even though this isn't really a certification). Thus increasing the overall cost of compliance. (Yeah I ain't no dummy, my fees would go up!)"

So this bill is wrong on many fronts. It solves no problems; it creates some. Most important, though, the bill increases the burden of the income tax system on society. Poor people should be exempt from paying taxes to give them a chance to work and save until they reach a decent income level. How does that work? Families save for educations so they can get better jobs. The current tax structure very effectively holds them down.

We don't need S.832, we need S 25 (the FairTax bill), which kills the income tax and gives a rebate to the poor so that they pay no taxes at all.

Please inform yourself about the FairTax. There's an immense amount of information at www.fairtax.org and a www.us4fairtax.blogspot.com. If you'd like to talk about it and ask questions, sign up at the FairTax national roundtable at http://groups.yahoo.com/group/nationalfairtax/ and ask your questions.

This is important. With your help we can get rid of the income tax and fund the US government, social security, medicare, veteran's benefits, etc. with the FairTax.

The President has called for reform: Help us do it.

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