In an exclusive interview with Spero News, Steven L. Hayes -- who presides over Americans for Fair Taxation
-- expressed confidence that the Republican leadership in Congress in light of the incoming Trump administration is well-disposed toward tax reform. Hayes’ organization proposes a Fair Tax rate of 23% on purchases of new goods and services after necessities. Under the scheme proposed by the advocacy group, the Internal Revenue Service would no longer be necessary and Americans would be able to keep all of their income. In the interview, Hayes said that a Fair Tax bill is endorsed by Vice President-elect Mike Pence and has 84 Republican co-sponsors.
The Fair Tax system, said Hayes, would benefit American workers and manufacturers, while it would reduce the U.S. trade deficit. “What we’re talking about is a better way to raise money. We’re talking about a method that will grow the economy a lot faster, which will bring jobs back home, it will quit favoring imports over U.S. goods -- which is what the U.S. income tax system does -- we’re talking about a situation that’s great for the economy, it’s great for people, we’re going to have a lot more jobs created here.” He added that the current income tax can never provide the above benefits.
Some importers, he admitted, are somewhat concerned because of the initial effect that the Fair Tax would have on imported goods. Hayes said that because “they get everything from overseas, they have an advantage over U.S. producers because they get these incentives through the income tax to import.” He explained that most of the trading partners of the U.S. utilize a Value Added Tax (VAT). “When it comes time to send a product that is exported to the United States, they then refund all of the VAT that has been collected,” Hayes said. Continuing, Hayes said “They allow it to be exported -- and it generally averages at 20% -- over here at 80% of what it sells for in Europe.” Because the U.S. does not have the VAT, European goods, he said, aggressively compete against U.S. products and is “unfair.”
American manufacturers are at a disadvantage, said Hayes, because they have to add the cost of payroll taxes, for example, to the price charged for their products purchased in the U.S. When European goods are sold in the U.S., they would be charged the Fair Tax as would U.S. products, but would no longer have an unfair advantage. Products coming from Europe, Hayes said, “When it is sold,it bears the retail sales tax, just like a U.S. product, and it is no longer an advantage. And when you have a product that is shipped to Europe, it doesn’t have a tax on it because the retail sales tax is only collected in the U.S. on retail purchases here.”
The resulting “level playing field,” said Hayes, provides an opportunity for U.S. companies to locate their factories in the U.S. rather than in foreign countries. The effect this shift would have in states such as Michigan, which has seen decades of the flight of manufacturing, would be huge, he said. The extant infrastructure and workforce in the Rust Belt could become productive again. “I would think you would become a prime target for investment to make products here.”
The Fair Tax Act
was introduced by U.S. Rep. Bob Goodall in 2015. A summary of the bill is as follows:
"This bill is a tax reform proposal that imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income and corporate income tax, employment and self-employment taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2017, with adjustments to the rate in subsequent years. There are exemptions from the tax for used and intangible property, for property or services purchased for business, export, or investment purposes, and for state government functions.
"Under the bill, family members who are lawful U.S. residents receive a monthly sales tax rebate (Family Consumption Allowance) based upon criteria related to family size and poverty guidelines.
"The states have the responsibility for administering, collecting, and remitting the sales tax to the Treasury.
"Tax revenues are to be allocated among: (1) the general revenue, (2) the old-age and survivors insurance trust fund, (3) the disability insurance trust fund, (4) the hospital insurance trust fund, and (5) the federal supplementary medical insurance trust fund.
"No funding is allowed for the operations of the Internal Revenue Service after FY2019.
"Finally, the bill terminates the national sales tax if the Sixteenth Amendment to the Constitution (authorizing an income tax) is not repealed within seven years after the enactment of this Act."