What I've Learned About
U.S. Income Taxes

When and Why?

Our Founding Fathers felt that the correct balance of governance should be about 95 percent local (state and municipal) and 5 percent federal. In the beginning, that's the way it was.

Birth of the Income Tax The code that permits the federal government to steal your earned income did not come into being over night. At least not in it's current 60,000-page form. Both the North and South enacted temporary income taxes to fund the 'Civil' War. Since then politicians of various persuasions attempted many times to leach funds from private individuals, but most of those attempts were rightly declared unconstitutional and defeated. It was not until liberal Republicans, backed by Teddy Roosevelt, came out in support of an income tax bill in 1908 that was promised to only be directed at the 'evil' wealthy. Conservative Republicans, afraid of losing votes, decided to support it only if it included an amendment to the constitution, an act that requires ratification by the legislatures of 75% of the states, an event they thought was impossible. Oops. The bill slithered through both houses like an oiled snake, and the Sixteenth Amendment was ratified February 12, 1913.

Originally, the one-half percent of American wage earners affected actually computed and paid their income tax by check once a year, on March 15. Of course now, the top 50 percent of us virtually pay all the income tax on April 15. The lower 50 percent pay none, either from earning less than the government-set poverty threshold or through deductions that reduce their 'adjusted' income below the tax tables.

Gradually, little law by little law, more and more Americans' income was bracketed by additions and modifications to the tax code. Pretty soon American dinner and party conversations nearly always ended in a depressing discussion of government heavy handedness.

Paycheck Withholding When the 1913 law was enacted, it allowed the government to enforce employers' withholding of taxes from workers' paychecks. In 1917 rising resistance to this bi-weekly theft resulted in a law prohibiting withholding. But, politicians being the greedy thugs they are, eventually found a means to re-instate withholding upon the advent of the need to fund World War II. War is the ultimate crisis tool in the politician's kit of ways to deprive you of your earnings. Walt Disney assisted the passage of withholding legislation by producing a war-time short featuring none other than Donald Duck. It was called 'The New Spirit.' The government mandated showing it country wide as a short at all theaters, typically to be presented right after the current news reel. In 1943 the Current Tax Payment Act was signed. It forgave 75 percent of the previous year's taxes (as opposed to the promised 100 percent.) Today, companies are required to immediately (within 3 days of payroll disbursement) send your withholding to the IRS. Through withholding, April 15 became the day taxpayers reconciled their tax accounts, not the day tax is paid. You pay your tax all year long. Your pocket is picked every two weeks. Now April 15th is 'refund' day. Ask your acquaintances how much they paid in income taxes this year, and some will say "None." A few will say 'Didn't; got some back.' Gotta love government education.

Who?

Q: Who pays income taxes?

A: Only individuals pay income taxes.

Corporate taxes are a myth. Corporations pay no taxes. Companies exist to pay dividends on investments by boards of directors and stockholders. Do you think the directors on the boards of the oil companies, Microsoft or Ford pay the company's taxes? The stockholders? Think again.

Fifty or so years ago, corporations paid about 30 percent of federal income tax revenues. Today that is down to about 10 percent. Virtually all corporations and large companies, even wealthy individuals, make use of offshore financial centers that have appeared around the world to store their wealth where the U.S. tax laws do not apply. Switzerland, Cayman, Nauru and the Bahamas immediately come to mind. Right now 11 trillion or more American dollars are sitting in banks in Europe, Asia, the Caribbean and elsewhere. That wealth is not creating jobs and participating in the American economy.

Our federal tax code has driven corporate wealth, and subsequently our economy and jobs, offshore.

What little taxes are paid are paid on the personal declared income of the individuals involved. Those taxes they pay are embedded in the retail prices you and I pay for the products and services the companies provide. So, you see, no one pays income taxes except you and I. Why do we pay income taxes? Not because we are 'fortunate' not to be poor, but because we have earnings left over after withholding.

How many folks do you do cash business with that have the opportunity for undeclared income? Bar tenders. Waitresses. Remodeling contractors, mechanics, fruit pickers, lawn mowers, house cleaners... a 2000 survey concluded that about 10 percent of the American GDP occurs 'off the books.' That is big a chunk of change in a 'shadow economy.'

Why?

Obama and his ilk are always telling us the tax system is unfair. It is, but not for the reasons he says it is. It is unfair because only the top 50 percent of Americans pay taxes. Not because the poor are taxed. The 'poor' are not taxed. The bottom 50 percent of wage earners pay no taxes, as I have said.

Obama and Pelosi want you to believe that taxing the wealthy (those who own the companies that create jobs) eases the burden on you and the 'poor.' Well, if the 'poor' and corporations don't pay taxes, who do you think is going to pay the 'taxes' he appears to put on corporations? Everything you subsequently purchase is going to cost a little more. So... doh, you pay the tax. It has been reliably estimated that there is an embedded accumulation of these taxes added to everything you buy at every stage of their handling that amounts to about 22 percent at the retail cash register. Add state and local sales taxes, and that quickly bumps to a total of about 33 percent on the average.

The American public spent $265 billion dollars in 2005 filling out IRS paperwork. Some businesses spend that much calculating tax implications of business decisions. There is an estimated $400 to $500 billion spent annually to collect just three times that much in tax revenue. Inefficient? Of course it is. And we're considering giving the government control of our health care? It's enough to turn your hair white.

Woefully under-educated people elected these thieves. And the rest of America is too blasé or too lazy or too hypnotized to realize how simple the answer really is.

What is the answer?

What if you could keep your entire paycheck?

Look at your last paycheck; add up the withholding, FICA, Medicare amounts. Divide by the gross amount of your check before the deductions. It should be between about 28 and 35 percent. If all federal taxes were abolished, most working Americans would immediately get an average 30 percent raise.

Add the embedded taxes of 33 percent on your retail purchases, and you have a tax rate of 63 percent! Higher, if there is a federal excise tax on the commodity, as in the case of fuel.

I do not have 3.5 million dollars to pass on to my heirs, so they will not have to worry about paying the inheritance ('death') tax. But wealthy folks who want their families to get their homes, savings, business assets when they die will pay taxes again on this wealth. Obama and Pelosi think that's fair.

What if we abolish all federal personal and corporate taxes (and the catch-all Alternative Minimum Tax.) Repeal the Sixteenth Amendment. Think about that for a minute.

No longer would producers of the products and services you buy have to pay the federal tax (that you pay for them.) Almost immediately (and this has been proven by similar actions in the past) those companies would be forced by market share competition to lower their prices. The 33 percent embedded retail tax you pay every purchase would disappear. This would be followed by lower interest rates (some estimate 30 percent) which would lead to economic growth in building and retail channels, creating jobs galore.

Oops. But what about the federal government? How would we fund our legislative, administration and judicial bureaucracies? It would be nice to reduce them to the 5 percent of total government that they should be, but that's not going to happen.

Remember the 33 percent embedded tax from accumulated corporate taxes? Let's replace the taxes we eliminated with a fixed federal retail sales tax of 23 percent. That is 10 percent on average less than you pay at the register now, and your paycheck is 30 percent on average higher than it was. So your net gain is 40 percent!

The result is an immediate 40 percent of our GDP (I hesitate to use the word...) stimulus to the American economy!

What else happens:

Whoa! What about the burden on the 'poor' and middle-income families? They now have to pay a 23 percent tax they didn't before. Actually it's less than before, but anyway here‚'s how we handle that complaint:

Every April 15th (why change a memorable date?) heads of household sends a list of the social security numbers of all their family members, their income, and any special health considerations to the government (they already know where you live, come on!) Calculations based on family size, income, health considerations determine the size of... get this, a monthly prebate check to cover their basic necessities. Nobody pays taxes on expenses up to the poverty level. Everyone else, every American, gets a basic necessity prebate. (Don't get me started on how much that will cost in postage. How about a Prebate Debit Card. Or electronic transfers?)

Is There a Name for This Plan?

Yep. It‚'s called The FairTaX Plan. It has a website, is on FaceBook and everything! Been around awhile, and collecting quite a following amongst the public and, surprisingly enough, in the U.S. Congress.

Want to Know More?

Guess what. There is a bill in each house of congress this year with 'FairTax' in its name. Each year, more congressmen and senators come to realize the need for IRS reform and climb on the FairTax bandwagon.

If you are not sold by now, or you just want more detail, get The FairTax Book at Amazon or somewhere else. What I've paraphrased here and more is in that book.

Help us start an economic revolution, without firing a shot!