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An Investor's View Of The Fair Tax: A Resolution
By: Steve Selengut
The vast majority of Americans are investors, although many don't realize it.
The vast majority of Americans are creative with their 1040 numbers, although
most won't admit it. The majority of Americans would agree that investing,
retirement planning, and estate preservation would be easier to manage if the
Internal Revenue Code was comprehensible. A landslide of American voters would
elect any candidate championing IRC replacement surgery.
All of us aspire to some degree of economic security and none of us would be so
critical of the wealthy if we had a shot at joining their ranks. One side of the
legislative mouth encourages savings and investment while the other treats it
with totally "unearned" disrespect. One wealthy political party wants us to hate
anyone with indoor plumbing while the other (wealthier) one spends most of its
time trying to protect its diminishing turf and powerful cronies. All levels of
government view businesses small and large as their all-purpose Reserve Accounts
and, as a result, both prices and taxes suffer from a terminal case of "downward
stickiness". Not surprisingly, in a DC crowded with 10,000 combative fiefdoms,
nowhere can a PhD in dot connecting be found. We can change this!
It is likely that most of you are more familiar with the controversial Fair Tax
Legislation than I am, but what I have found most shocking is just how
thoroughly The Act's refreshingly new ideas have been swept under the
congressional carpet. Neither political party really wants to change the sacred
IRC, and why are our media heroes keeping their heads in the sand on this one?
Let's squeeze some meaningful change out of the next administration. From an
Investor's point of view, implementation of just three elements of the Fair Tax
would be an outstanding starting point, even without the more sweeping changes
that the Bill addresses.
[The Fair Tax Act of 2003 was authored by Representative John Lindner and
co-sponsored by 54 others. Its purpose is: To promote freedom, fairness, and
economic opportunity by repealing the income tax and other taxes, abolishing the
Internal Revenue Service, and enacting a national sales tax to be administered
primarily by the States.]
Now this is pretty heady stuff, for sure, but every bit as easy to implement as
real Social Security reform would be. The three changes reviewed briefly below
would be an excellent Phase One.
1) Eliminate the Corporate Income Tax, and all other nuisance fees and taxes
that businesses must pay just for existing. Whatever any business is charged in
fees, taxes, and mandatory assessments is translated into higher prices for
goods and services… and at more than a 1/1 ratio. Governments need to look at
businesses as employers and wealth generators, not as rateables. Lower expenses
should result in lower prices and higher profits, and this would be
comparatively easy to monitor for compliance.
Corporations would have more incentive to control their general expenses if such
savings would actually make it to a bottom line that could be used to grow the
business, compensate owners, and reward employees. More, higher paid, employees
and more spendable (untaxed) corporate dividends are good for the economy. How
many billions in lobbyist fees would be removed from corporate pricing formulae?
With no income taxes or mandated charges to fork over, corporations could focus
on growth and innovation. Investors would own more viable companies, selling
more competitive products, to a more affluent population. Additionally, fewer
jobs would be exported, more foreign companies would invest in the US of A, and
GNP would rise at a faster pace. Rising profits would increase dividend payouts,
stock repurchases, debt retirement, and employment opportunities.
2) Eliminate the Capital Gains Tax: I've often referred to taxes (or tax
avoidance decisions) as one of two "Tails" that "Wag the Investment Dog". Every
year, millions of people go out of their way (with professional encouragement)
to lose money on perfectly good securities. Those who take profits too soon are
punished severely and those whose behavior is tax-wise may severely damage their
investment portfolios' future. Although it is clear that the Capital Gains Tax
was originally designed to pick the pockets of those terrible folk wealthy
enough to play the stock market for profit, it now inflicts considerable pain on
all of us… particularly those who foolishly subscribe to the archaic Buy 'n Hold
investment (mismanagement) strategy. Times have changed, and the average
investor is now a pretty average guy indeed, willing to build a future if Uncle
will let him.
A Government that bemoans the population's low savings and investment rates has
only itself to blame, and Wall Street Institutions are happy to exacerbate the
problem with their own financial pandemic of products, strategies, and tax
deferral/avoidance schemes. Fair Tax advocates estimate that Billions of
Dollars, Hours, and Antacids could be allocated more productively every year,
just from eliminating this portion of the tax form preparation process… not to
mention the trees.
3) Eliminate taxation on all forms of investment and Retirement income:
Dividends, Interest, Rents, Royalties, Social Security, Pension, IRA, 401(k),
etc. It just makes abundant sense, doesn't it? Without taxation, interest rates,
rents, and professional's fees, just to name a few, could fall. Personal
disposable income would rise and a much larger number of retirees would be able
to live comfortably. Isn't this what periodic IRC tinkering is all about?
Wouldn't it be cool if all of those different IRAs and self directed plans could
be combined and relabeled: "My Untouchable Retirement Plan"? We would all save
more and spend more if we had more to deal with.
No one expects a hundred million taxpayers to agree 100% on the final plan. I
have problems with taxing education and health care spending, for example, and
there is no doubt that displaced IRS bureaucrats will populate new compliance
entities that monitor corporate operations. And most would agree that three
separate sales taxes would be unacceptable. But real win/win/win change is in
sight. We just need a positive leader with some…
Here's my proposed 2006 (and beyond) Voting Resolution for anyone with even the
smallest start-up IRA account: "I promise to never, ever, cast my vote for any
incumbent, at any level of government and from any political party, that has not
clearly demonstrated that the repeal and replacement of the existing IRC is at
the very top of his or her political agenda." It's time to reinvent the wheel!
About the Author:
Steve Selengut www.sancoservices.com
www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979 Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy" |
