FAQ

The American Tax Plan for the 21st century

1. What about the National Sales Tax Plan? – While the national sales tax plan has advantages the fact is that at the rate proposed, it would result in a massive behavioral change. At some point, we see where legislation has unexpected consequences. Obviously, prohibition is an example as was the Luxury Tax. While we want to believe that others will simply conform to what we consider to be acceptable behavior, there are limits. When it comes to taxation, we have many data points that indicate a 23% sales tax would results in the creation of a massive economic underground. As supporters of the national sales tax indicate, there would be an initial decrease in retail sales followed by a return to more normal levels. What they fail to want to acknowledge is that would be followed by a third stage. An increasingly large percentage of retail sales would go off the radar. More products and sales would move out of traditional retail channels into channels not currently required to collect sales tax. Obviously, this would include Internet outlets. As retail sales plummeted, tax revenue would do the same. That would require the formation of some government agency to enforce sales tax collection. During this period, organized crime would become involved much as they have in situations where discrepancies in state sales taxes have created profit opportunities, http://www.cato.org/pubs/pas/pa468.pdf .
This isn’t knocking the national sales tax but a realization of the impact such a rate has on human behavior. If you don’t think this would happen, you haven’t studied your history.

2. What About the Flat Tax? – Another good idea that the American Tax Plan uses in moderation. While I agree that money takes a circular path, I would disagree that it isn’t important where within the path taxes are withdrawn. A Flat Tax requires that all Federal Income Tax be paid by individuals subject to federal tax. This represents a huge burden placed on an increasing small segment of our population. Many people not subjected to federal income tax benefit from our great economy including many foreign nationals who invest in the US stock market. Foreign-owned businesses and their owners also prosper and while they benefit greatly; would not contribute under a Flat Tax. That violates my definition of fair and is addressed by the American Tax Plan.

3. The American Tax Plan doesn’t get rid of the IRS. – That is correct. The IRS has been unfairly blamed for trying to enforce a tax system that no one understands. Congress has asked the impossible and the IRS has struggled to do as good as job as possible. However, in all other tax plans, there is an unrealistic expectation that people will simply comply with the tax plan and I believe that simply would not happen. History shows us that when people are asked to pay extreme tax rates, behavior changes and some federal agency would have to be formed to force compliance. Under the American Tax Plan, the IRS would have little or no contact with individual tax payers but would monitor companies.

4. Why are there two tax rates; one for Distributers/Retailers and one for Manufactures/Services/Professional? – We have the most efficient product distribution system in the world and the typical distributer and retailer operate under some very slim margins. The goal is to spread the pain wide and thin. I looked at the effective federal tax rate WalMart pays and used that. Manufacturers/Services/Professionals should be operating with greater margins. Manufacturers typical place a great strain on the local community with infrastructure needs. Again, I looked at a number of these type companies and some like GM paid little or no federal taxes while Microsoft paid a substantial amount. For some of these companies the tax rate would go up and for other it would go down a lot. My feeling is that the tax should be a cost of doing business and equal for all similar businesses. You can’t decide to not pay your employees or your suppliers and a tax to support the federal government should fall into that category. The key is to not make it a staggering amount.