Fair tax: Book predicts grim prospects without overhaul
Friday, May 26, 2006
I've just finished the best-selling book, "The Fair Tax Book: Saying Goodbye to the Income Tax and the IRS*," by Neal Boortz (radio talk-show host at 9 a.m. on 960 KZIM) and U.S. Rep. John Linder.
The asterisk in the title, by the way, is explained: "*Not to mention the Social Security tax, the Medicare tax, corporate income taxes, the death tax, the self-employment tax, the alternative minimum tax, the gift tax, capital gains taxes, tax audits and some major headaches every April 15."
The book is full of stats that predict the bankruptcy of Medicaid, Medicare and Social Security. The book also discusses the cost of filing tax returns and a tax which causes "trillions of dollars" to be deposited offshore: "The 2000 Merrill Lynch and Gemini Consulting study World Wealth Report estimates that one-third of the wealth of the world's high-net-worth individuals is held offshore, ... $11 trillion sucked out of the American economy, all of it immune to the tax obligations you suffer every April 15. Cut this amount in half and it still exceeds the GDP of every nation on the planet except the United States."
From the book:
America has always been a generous nation. We have always concerned ourselves with the problems of others as much as we have our own. That generous spirit, as it relates to Social Security and Medicare, is quickly driving both of these programs toward bankruptcy. We are facing a grave risk to the economic security of both the next generation of workers and the next generation of retirees.
It's time to test your knowledge on Social Security and Medicare. Here's a quick quiz:
1. Which program is expected to go bankrupt first: Social Security or Medicare?
2. How much of his or her paycheck does each American worker pay each month to support today's Social Security and Medicare programs?
3. How much do wealthy Americans living off their investment income and dividends pay each month to support Social Security and Medicare?
4. Do most working Americans pay more in income taxes or Social Security and Medicare taxes?
5. Myth or fact: Members of Congress and the president do not pay taxes to support Social Security and Medicare.
6. Myth or fact: Social Security is a retirement program that we all pay into and receive from proportionally -- meaning that if one person retires after averaging $10,000 a year in earnings and another retires averaging $90,000 a year in earnings, the Social Security check received by the second retiree will be nine times that of the first retiree.
Now, here are the answers. Let's see how well you did.
1. Medicare. The Medicare Board of Trustees predicts that it will be bankrupt in 2020, while the Social Security Board of Trustees predicts that Social Security will not fail until 2041.
2. 7.65 percent ... and the employer "pays" another 7.65 percent for each employee.
Though it's not the subject of this book, something needs to be said about this idea that employers make a matching contribution to every worker's Social Security account in an amount equal to the Social Security tax withheld from the employee's paycheck. There is not one single serious and sober economist who is not working for the federal government who would support that fantasy. The so-called "matching contribution" paid by the employer is money taken from that sum budgeted by the employer to hire that worker. As such, it is, in reality, taken from the employee's earnings just as is the amount actually shown on the employee's check stub. However, for the purposes of this book, and to avoid introducing unnecessary controversy, we'll go along with the "matching contribution" nonsense.
3. Zero. Only those Americans who work for a living pay Social Security and Medicare taxes. Americans who receive millions and millions of dollars in income each year from stocks and bonds but don't receive a traditional "paycheck" never pay a penny in Social Security or Medicare taxes.
4. Most Americans (75 percent) pay more in Social Security and Medicare taxes than in income taxes.
5. Myth. Members of Congress and the president must have Social Security and Medicare taxes withheld from their paychecks just like every other American.
6. Myth. Social Security is an income redistribution and welfare program. Low-income Americans receive a check that replaces 90 percent of their preretirement income. Workers paying taxes on a $50,000 income will receive a check for only 32 percent of their preretirement income, and those workers paying taxes on $90,000 will receive a check covering just 15 percent of their preretirement income.
The problems facing the country with immigration, accelerated financial costs that threaten to bankrupt state and federal treasuries are immense. and political demagoguery will not continue to be successful if the public becomes informed.
Gary Rust is chairman of Rust Communications.