On January 1, 2015, the Carryout Bag Ordinance will start in Dallas.
Are you ready?
An Inconvenient tax: picking people’s pockets
By Raymond Thomas Pronk
Warning, when you check out, be on the lookout for pickpockets.
The latest green movement cause du jour is the banning or taxing of disposable plastic and paper bags. These laws or city ordinances are designed to nudge or coerce customers to bring their own reusable tote bag when they shop for groceries and other merchandise.
A number of United States cities including Washington, D.C., Los Angeles, San Francisco, Portland, Seattle, Boulder, Austin and now unfortunately Dallas have either banned or taxed disposable plastic and/or paper bags or so-called “single-use carryout bags.” According to the Earth Policy Institute, over 20 million people are currently covered by 132 city and county plastic bag bans or fee ordinances in the U.S.
For decades most American and European businesses have provided their customers bags, at no additional charge, to carryout and transport their purchase. In the 1980s businesses began to give their customers a choice of paper or plastic.
On March 26, 2014, the Dallas City Council passed an 8 to 6 City Ordinance No. 29307. It requires business establishments that provide their customers “single-use carryout bags” to register with the city annually each location providing these bags and charge their customers an “environment fee” of 5 cents per bag to promote a “culture of clean” and “to protect the natural environment, the economy and the health of its residences.”
Give me a break. It is a new tax to raise millions in new tax revenue for the City of Dallas. Who are the elected Dallas-8 council member watermelons (green on the outside, red on the inside) that ordained this tax on the people and businesses of Dallas? The names of the Dallas-8 are Tennell Atkins, Carolyn R. Davis, Scott Griggs, Adam Medrano, Dwaine R. Caraway, Sandy Greyson, Philip T. Kingston, and Mayor Mike Rawlings.
The Dallas-8 are led by council member Caraway, who wanted to completely ban plastic and paper single-use carryout bags. Instead they decided to shake down Dallas businesses and their customers with a new highly regressive tax. Caraway refuses to call it a tax and claims the new ordinance which went in effect on January 1 is “a ban with a fee, such as other cities are doing across the United States.”
The eight-page ordinance includes the definition and standards that reusable carryout bags must satisfy: “A reusable carryout bag must meet the minimum reuse testing standard of 100 reuses carrying 16 pound.” Reusable bags may be made of cloth, washable fabric, durable materials, recyclable plastic with a minimum thickness of 4.0 mil or recyclable paper that contains a minimum of 40 percent recycled content.
All of the above reusable bags must have handles with the exception of small bags with a height of less than 14 inches and a width of less than 8 inches.
Business establishments can either provide or sell reusable carryout bags to its customer or to any person.
The city ordinance exempts some bags from the single-use carryout definition including:
The Dallas 5 cent paper and plastic bag tax or environment fee applies only to single-use carryout bags defined as bags not meeting the requirements of a reusable bag.
Businesses that violate the ordinance can be fined up to a maximum of $500 per day.
Lee Califf, executive director of the American Progressive Bag Alliance, a bag manufacturing group, said “This legislation applies to a product that is less than 0.5 percent of municipal waste in the United States and typically less than 1 percent of litter in studies conducted across the country;” “Placing a fee on a product with such a minuscule contribution to the waste and litter streams will not help the environment: but it will cost Dallas consumers millions more per year on their grocery bills, while hurting small business and threatening the livelihoods of the 4,500 Texans who work in the plastic bag and recycling industry.”
Stop the shakedown of Dallas businesses and their customers. Repeal the inconvenient tax on paper and plastic disposable bags by voting out of office the Dallas-8 city council members who voted for this tax, Dwaine Caraway. Support your Texas state representatives in passing a new law that would prohibit cities such as Dallas and Austin from banning or taxing paper and plastic carryout bags.
On January 1, 2015, the Carryout Bag Ordinance will start in Dallas.
Are you ready?
Retailers offering only reusable bags, as defined by the ordinance, have different requirements.
All retailers should look at their operations and determine if their bags are single-use, reusable, or exempted from the single-use definition. Consult the full ordinance for all details pertaining to the ordinance and what is expected for each type of bag including thickness, language on the bag, durability, signage, and other considerations.
Customers, you are encouraged to bring your bagand keep your change.Single-use carryout bags have a five-cent per bag environmental fee. A single-use bag can be paper or plastic.Reusable bags do not have the environmental fee, though stores may charge you to offset costs. Reusable bags stores offer can be made from cloth or other washable woven materials, recyclable paper, or recyclable plastic so long as they meet certain requirements. However, any bag you bring with you to use is considered reusable since you are reusing it.There are some bags that are exempted from the single-use bag definition:
Remember to recycle the bags you can recycle appropriately.
Many wonder why the City passed this ordinance. The Dallas City Council passed the ordinance to help improve the environment and keep our city clean. The City is currently spending nearly $4 million dollars to remove litter from our community to keep it beautiful and thriving.
The Carryout Bag ordinance is intended to encourage shoppers to use reusable bags to carry goods from stores, restaurants, and other locations to reduce the number of bags that can end up loose in the environment as litter.
To help you understand, we have created this list of frequently asked question.
The carryout bag ordinance outlines the City’s “desire to protect the natural environment, the economy and the health of its residents,” and the “negative impact on the environment caused by improper disposal of single-use carryout bags.” The Dallas City Council approved the ordinance on March 26, 2014.
The ordinance takes effect on January 1, 2015.
Retailers and customers should be ready and know all the details. This website and the City’s Code Compliance Services website have details to help retailers prepare. The links to the Code website on DallasCityHall.com are below.
Some are still unclear how the ordinance may impact them.
Businesses will have to register each location with the City in order to offer single-use bags. No registration is necessary if a business is only offering reusable bags or bags that are exempted from the single-use bag definition in the ordinance. Businesses must be registered before distributing single-use carryout bags starting January 1, 2015. Businesses are required to collect a five-cent environmental fee for every single-use bag used by a customer.
Customers will be charged a five-cent environmental fee for each single-use bag, paper or plastic, they receive from retailers. Again, reusable bags and bags exempted from the definition of single-use bags do not carry the environmental fee. You can avoid the environmental fee by bringing your own bags with you. The five cent fee assessed for the single-use bag is not subject to sales tax.
Will I still be able to get plastic carryout bags?
Yes, provided your retailer chooses to offer them and collect the environmental fee.
Can I bring my own reusable bags to carry out items I purchased?
Yes. Customers are encouraged to bring their own reusable bags to carry out their items instead of paying the five-cent environmental fee per single-use plastic or paper bag.
If I reuse a single-use carryout bag, will I have to pay the fee again?
Whatever bag you bring — tote bag, golf bag, diaper bag, satchel, purse, or produce bag — if you bring it with you to reuse, you do not have to pay the environmental fee.
Where does the money go?
A portion of the fees will be used to pay for enforcement of the ordinance and for public education efforts. Stores keep 10 percent of the five-cent fee to help offset administrative costs.
Does this ordinance apply to all businesses?
All retailers that offer single-use carryout bags in Dallas are subject to this ordinance.
What about non-profits or charities?
If the non-profit or charity offers food, groceries, clothing, or other household items free of charge to clients, they may still use single-use carryout bags for the specific function of distributing those items. However, the ordinance will apply to any bags used at the point of sale for any goods sold through the non-profit or charity.
Additionally, any non-profit or charity that collects goods for donation from the public or which leaves informational material for the public must be sure any door-hanger bags left for collecting those goods or providing that informational material are biodegradable.
Does the ordinance include all bags?
The ordinance applies to single-use paper or plastic carryout bags used by businesses as defined in the ordinance language.
What if businesses don’t follow the ordinance?
Businesses that violate the ordinance could face fines of up to $500 per day.
How will the ordinance be enforced?
City Code Compliance inspectors will respond to complaints and provide proactive enforcement.
How can the City know if businesses aren’t complying with the law? Will they be doing more inspections?
There will be proactive enforcement and periodic audits. Additionally, the City will respond to complaints from residents.
Will the ban on single-use bags at city facilities apply to retailers at American Airlines Center, city museums, the Omni Dallas Hotel, and Fair Park?
Yes. The City Attorney’s Office will work with Code Enforcement to determine which facilities are affected and how.
Whom should I contact if I have additional questions?
Call 3-1-1, the Office of Environmental Quality, Code Compliance or email us firstname.lastname@example.org.
NEW⇒ Where can I find the forms?
Forms and more information are available on the Code Compliance website dedicated to the Carryout Bag Ordinance here.
For months Dwaine Caraway has insisted he had the votes to pass at least a partial ban on the single-use carryout bag. He was right: By a vote of 8-6 the Dallas City Council passed the so-called “environmental fee ordinance,” which bans single-use carryout bags at all city facilities and events while still allowing retailers to use plastic and paper bags.
But beginning January 1 retailers will have to charge customers who want them “an environmental fee” of five cents per bag, and they will get to keep 10 percent of that money. The ordinance also says retailers who want to keep handing out plastic and paper bags will have to register with the city and keep track of bags sold.
The city says the money raised from the bag fees will help go toward funding enforcement and education efforts that assistant city manager Jill Jordan told the council could cost around $250,000 and necessitate the hiring of up to 12 additional staff members.
Wednesday’s vote came a year after council member Dwaine Caraway asked the city attorney to draft an ordinance that completely banned the bag. The council member says the ordinance passed today was a compromise born out of “a fair process” that included environmentalists, bag manufactures and retailers. Several of his colleagues wanted to send the proposed ordinances back to committee for further debate. But Caraway wanted a vote now.
“You get to a point where it’s time to make decisions, decisions that will have a great impact on the city of Dallas and our environmental status … and the beautification of our city,” he said. The process has “been pretty tough. it’s been back and forth. We listened and listened fairly.”
But six of his colleagues disagreed: Sheffie Kadane said the fee-based ban will result in a lawsuit from retailers and manufacturers. Rick Callahan called it a “government intrusion.” Jennifer Staubach Gates said it wouldn’t do any good, because in five years the reusable bags supported by the environmentalists will end up in landfills too. And Jerry Allen said the three options being considered by council, including a full-out ban, represented “a lack of clear conviction,” which he found disappointing.
And then there was Lee Kleinman, who on Friday indicated he supported the fee-based ordinance. Five days later he’d changed his mind and said he no longer cared what happened in his colleagues’ districts.
“I would personally probably stay more focused on my own district, which does not have the same trash problems as others,” he said, to the amazement of some of his southern sector colleagues. “Why should I care if someone is shopping like at Southwest Center Mall and they want a plastic bag? If people in that community are satisfied with the conditions around that mall, why should I utilize my position in North Dallas to improve those conditions? I should just focus my energies on North Dallas redevelopment projects and not help another improve quality of life in other areas of the city.”
That entire speech is above, thanks to my colleague Scott Goldstein.
Vonciel Jones Hill, who has said in the past she opposes any ban or bag tax, was no present for today’s vote. Monica Alonzo also voted against it, but said nothing.
In a statement released following the vote, the American Progressive Bag Alliance said it’s “a move that will fail to accomplish any environmental goals while jeopardizing 4,500 Texas jobs and hurting consumers.”
Its executive director, Lee Califf, said in a statement that “the vote to approve a 5-cent plastic and paper grocery bag fee in Dallas is another example of environmental myths and junk science driving poor policy in the plastic bag debate.”
But it’s not clear if the state will allow Dallas’ new bag “ban” — or bag tax, more appropriately.
Attorney General Greg Abbott is going to weigh in on the legality of bag bans, following a request by state Rep. Dan Flynn of Canton on behalf of the Texas Retailers Association. Jerry Allen asked Dallas City Attorney Warren Ernst if the state allows bag bans.
“We are ready to defend that position,” Ernst said. “If it’s the will of the council to pass the ordinance, we’ll defend that as a legal action by the city.”
Allen was not convinced, insisting “there’s a tremendous amount of uncertainty.” Ernst appeared to agree.
Those council members opposed to the ordinance said Dallas needs to do a better job of enforcing its litter laws. Jordan told the council that the city spends $4 million annually on trash pick-up, “and we still have litter.”
In the end, said council member Scott Griggs, “this is just one step. We tackle the bags then we can move on to Styrofoam and other issues that cause trash. This is a large elephant we’ll have to take on as a city and a council.”
Kroger’s Gary Huddleston, also of the Texas Retailers Association, shared a hug with Dwaine Caraway following today’s council vote.
Following the vote, Gary Huddleston, head of the Texas Retailers Association, said he wasn’t sure whether his organization would sue the city. He noted that they are awaiting the attorney general’s ruling on the legality of a fee.
“It will affect the retailers in the city of Dallas and it will affect our customers,” Huddleston said. “They’ll have to pay for their paper and plastic bags or they bring in their reusable bags.”
“We personally believe the solution to litter in the city of Dallas is a strong recycling program and also punishing the people that litter and not punishing the retailer,” Huddleston said.
The fee means that businesses will have to institute additional programming and training in order to enforce ordinance and track the fees. Customers will “have to pay a nickel a bag, whereas maybe they use that nickel to buy more product in my store.”
But Huddleston’s concerns didn’t stop him from hugging Caraway outside chambers. The two men smiled and embraced in front of television cameras.
The council member said he was pleased with the result of more than a year of work. He refused to call the fee a “tax.”
“It’s a ban with a fee, such as other cities are doing across the United States,” Caraway said.
He said it’s important for residents to know the ban does not cover a variety of bags, such as those in the produce section of grocery stores or at restaurants
“Folks need to understand that these are single-use carryout bags,” Caraway said. “These are simply those thin, flimsy bags that take flight and that are undesirable and bad for the environment.”
Staff writer Scott Goldstein contributed to this report.
The City of Dallas has implemented new rules for plastic grocery bags, imposing a 5 cent fee on single-use plastic or paper grocery bags. The rules go into effect in January. (Published Wednesday, Mar 26, 2014)
Thursday, Mar 27, 2014 • Updated at 5:56 AM CST
The Dallas City Council has passed a proposal ordering retailers to charge a fee for one-time use plastic bags while partially banning them from city-owned facilities.
In a 8-6 vote, the council passed the ordinance requiring retailers to charge customers a $0.05 fee if they request single-use plastic or paper bags.
Dallas Plastic Bag Ban Vote Wednesday[DFW] Dallas Plastic Bag Ban Vote Wednesday
The Dallas City Council is expected to vote on plastic bag ban issue on Wednesday. (Published Monday, Mar 24, 2014)
Dallas City Councilman Dwaine Caraway accepted the compromise of a bag fee after spending a year fighting for a ban on single-use bags.
“This is an opportunity for us to clean our city, to clean our environment and to move forward, and to be like the other cities across the country and around the world,” Caraway said.
Zac Trahan with Texas Campaign for The Environment said Austin and eight smaller Texas cities have taken stronger action by banning single-use bags, but he still supported the Dallas regulations.
“It’s still a step in the right direction because it will still result in a huge reduction in the number of bags that will be distributed,” he said.
The ordinance also requires those retailers to register with the city and track the number of single-use bags sold.
The retailer would keep 10 percent of the environmental fee with the remainder going to the city to fund enforcement and education efforts.
Lee Califf, the executive director of the bag manufacturers’ group American Progressive Bag Alliance, released the following statement after the ordinance was passed.
“The vote to approve a 5-cent plastic and paper grocery bag fee in Dallas is another example of environmental myths and junk science driving poor policy in the plastic bag debate. This legislation applies to a product that is less than 0.5% of municipal waste in the United States and typically less than 1% of litter in studies conducted across the country. The City Council rushed through a flawed bill to appease its misguided sponsor, despite the fact that 70% of Dallas residents opposed this legislation in a recent poll.
“Placing a fee on a product with such a minuscule contribution to the waste and litter streams will not help the environment; but it will cost Dallas consumers millions more per year on their grocery bills, while hurting small businesses and threatening the livelihoods of the 4,500 Texans who work in the plastic bag manufacturing and recycling industry. Councilman Caraway may view this vote as a victory for his political career, but there are no winners with today’s outcome.”
Several Council Members opposed any new restrictions.
Rick Callahan said grocery bags are only a small part of the Dallas litter problem and better recycling education is needed.
“Banning something or adding a fee, putting more regulation on business is not the answer,” Callahan said.
The ordinance does ban single-use plastic or paper bags at city-owned facilities and events.
It still allows distributing multi-use, or stronger, paper or plastic bags for free so stores can get around charging the fee by offering better bags.
The ordinance goes into effect Jan. 1, 2015.
After more than a year of considering a ban on disposable shopping bags, the Dallas City Council voted instead last week to impose a 5-cent “environmental fee” on each bag.
In previous columns, Steve Blow had opposed a ban, while Jacquielynn Floyd had supported it. Today, they debate the council’s new approach.
Steve: Leave it to the Dallas City Council to take a bad idea and find a way to make it worse. I thought a ban on shopping bags was a bad idea, but slapping a new tax on Dallas shoppers is even more pointless.
This isn’t just a new tax, it’s a new mini-bureaucracy at City Hall. There’s talk of hiring 12 new people to run the program. And I’m sure someone is already writing a job description for a Deputy Junior Assistant City Manager for Retail Packaging Assessment and Oversight.
Good grief. I had little faith that a ban would accomplish much. I’m even more dubious about a bag tax — except as a tool of government growth.
Jacquielynn: Dude, it’s a nickel. Nobody’s getting taxed into bankruptcy here.
I hope, in fact, that this modest 5 cents is enough to assign at least minimal value to these awful bags. The reason they end up on fences, in fields and as tree garbage is that they’re so free and plentiful.
Almost everybody collects them every day — yet they have virtually no value. It’s human nature to take something for free, then toss it or lose track if you don’t need it.
Like it or not, this is the direction cities are headed. Los Angeles has had a ban in effect for more than a year. New York and Chicago are talking about either banning or limiting plastic bags.
I don’t think this is a case of forcing people to bow to the authoritarian rule of government overlords — we’re asking for a very minor change in their habits. It makes environmental sense, like other conservation and recycling measures that have become routine.
Steve: They don’t end up as litter because they’re free and plentiful. They end up as litter because a few dopes among us litter. A nickel is not going to transform those dopes into responsible citizens. Anyone careless with trash is not going to suddenly become careful with 5-cent trash.
On a fundamental level, this issue chaps my inner libertarian. I don’t think “government regulation” is automatically a dirty word. But I firmly believe the need must be obvious and compelling before we add more regulation.
Jack, you may be fixated on plastic bags as you drive around, but I promise they make up a small percentage of the litter that’s out there. I see more cups than anything. Will we be required to carry around reusable cups next? Or pay a cups tax?
Jacquielynn: Steve, I agree that clueless dolts dump all kinds of garbage, from burger wrappers to moldy old sofas.
Plastic bags are a particular problem, though, for the very qualities that make them such a successful consumer product: They’re cheap, durable, lightweight and water-resistant. They’re mobile, easily blown into trees, creeks, fences and even for miles out into rural areas. A farmer who lives outside Dallas told me this week he hates plastic bags because when they land on his property, baby calves can choke on them.
Most of us don’t have calf problems, but the bags’ weightlessness makes them vulnerable to any breeze. Even if they’re responsibly discarded, they’ll blow out of open trash cans, trucks, you name it.
They’re not just a blight — they’re a highly contagious blight.
Steve: Oh, c’mon. How am I supposed to rebut choking baby calves?
I will point out that Washington, D.C., has a real paradox on its hands. It implemented a 5-cent fee on disposable bags in 2010. And in a survey last year, residents reported using 60 percent fewer bags.
But get this: Tax revenue from the bags has been going up, not down as was expected. The city had originally projected to collect $1.05 million in fiscal 2013. Instead, bag fees topped $2 million.
The dollars don’t lie. More bags are being used after four years. Sure, some people will switch to reusable bags. But this sure isn’t going to make plastic bags disappear. Is a regressive new tax really worth it?
Jacquielynn: I’d be happy to sidestep the entire “tax” issue by banning bags outright. If you want groceries, make sure you have a way to get them home.
But if cities aren’t ready to take that step, and they actually see a windfall out of bag taxes, maybe that should be dedicated to cleanup efforts.
Ideally, though, stores wouldn’t have the things at all. They can make boxes available (a la Costco). They can sell heavier plastic multiple-use bags for 25 or 50 cents. Shoppers buying just one or two items could learn to use the flexible appendages at the ends of their arms to carry stuff away.
The mail I’ve received from angry readers makes it plain that a lot of people loathe this plan, whether you call it a ban or a tax.
But I just don’t think we’re asking for a dramatic change in the way we live our lives. If we don’t stop assuming that everything we send to the landfill magically disappears, the landfill is going to start coming to us. Do you really want to live in a city that has garbage in the trees?
Steve: No, it’s not a drastic change. Just a needless one. And I’m looking out my office window at six or seven trees with nary a bag in sight. Except for a few spots, the litter problem has been overblown.
I just wish we had tried a major public-awareness campaign before imposing more taxes and more regulation. 1. Recycle bags where you get them. 2. Try reusable bags. 3. Don’t litter, you dope.
Jacquielynn: On those points, we’re in wholehearted agreement.
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The GOP Senate primary in Mississippi continues to intensify with the surfacing of a robocall aimed at potential voters that strongly criticizes the tea party and urges the listeners to vote against state Sen. Chris McDaniel in Tuesday’s runoff vote.
In the automated message appearing to target black Democrat voters in Mississippi, the female voice on the line claims that tea party challenger Chris McDaniel would lead to more obstruction in Washington and create more “disrespectful treatment” to the nation’s first African-American president.
“The time has come to take a stand and say NO to the tea party,” the message says. “NO to their obstruction. NO to their disrespectful treatment of the first African-American president.”
The robocall, which was first obtained by freelance journalist Charles C. Johnson from a local resident, goes on to urge listeners to go to the next polls Tuesday and vote against McDaniel. The only option in voting against McDaniel is to vote for incumbent Sen. Thad Cochran as they will be the only two names on the ballot.
“If we do nothing, tea party candidate Chris McDaniel wins and causes even more problems for President Obama,” the message continues. “With your help we can stop this. Please commit to voting against tea party candidate Chris McDaniel next Tuesday and say NO to the tea party!”
Some experts have argued that it is technically illegal for voters affiliated with an opposing party to vote in another party’s primary in Mississippi.
The Cochran campaign is denying that they have any connection with the robocall and declared it to be a “stunt” coming from allies of McDaniel.
“It’s an obvious, transparent stunt by McDaniel and his allies,” Jordan Russell, a spokesman for Cochran, told The Daily Caller Sunday.
The McDaniel campaign is claiming otherwise.
“It is clear that Mississippi Republicans have rejected Thad Cochran’s liberal voting record and it’s sad to see Thad Cochran resort to courting Democrats simply to hold onto power,” McDaniel spokesman Noel Fritsch told TheDC.
This isn’t the first allegation that there are efforts to get out Democratic votes for Cochran in Tuesday’s vote.
This is only the latest incident in controversy surrounding efforts to get out Democratic votes for Cochran in the runoff that includes a black preacher — who is a strong supporter of the Democratic nominee for the Senate seat — actively trying to get members of his community to vote for the sitting senator.
CreditEdmund D. Fountain for The New York Times
A surge of voters showed up on Tuesday in African-American precincts and in Mr. Cochran’s other strongholds to surprise Mr. McDaniel, 41, who just Monday night declared his campaign had gone from impossible to improbable to unstoppable. Early Wednesday, with all but one precinct reporting, Mr. Cochran’s lead over Mr. McDaniel was a little more than 6,000 votes. Recounts are not required under Mississippi law, although Mr. McDaniel could seek to challenge the results through the courts.
Mr. Cochran’s victory was powered in part by African-Americans in areas of north Jackson whose turnout shattered that seen in those precincts in the primary. Turnout jumped fivefold at New Hope Baptist Church, and sevenfold at Green Elementary School, where only 14 voters came out on June 3 but about 100 showed up on Tuesday.
Their high numbers came despite pledges by conservative political action committees to monitor turnout in Democratic areas targeted by Mr. Cochran’s campaign. Both the N.A.A.C.P. — which sent its own poll watchers — and the United States Justice Department expressed concerns about the possible intimidation of black Democrats, but no irregularities were reported to Mississippi election officials. The state has no party registration, and anyone could vote in the Republican runoff who had not voted in the Democratic primary, which was won by former Representative Travis Childers, 56.
It was an extraordinary end to a wild campaign, with a Republican standing up for the rights of black Democrats, and with Tea Party groups from the North, especially the Senate Conservatives Fund, crying foul.
Also sure to inflame the right: a center-right super PAC, Defending Main Street, which contributed over $150,000 to Mr. Cochran during the runoff, received $250,000 from Michael Bloomberg in the same period, according to a source close to the former New York City mayor.
Mr. Bloomberg also contributed $250,000 to Mr Cochran’s super PAC, Mississippi Conservatives, before the primary.
For months, the contest between Mr. Cochran and Mr. McDaniel was viewed as this year’smain event in the six-year clash between conservative activists and Republican incumbents. Money and celebrities poured into Mississippi from all over the country, with the establishment determined to make the state a Tea Party Waterloo. For their part, conservative groups were hoping for one major victory for the season.
But after the surprise primary defeat this month of Representative Eric Cantor of Virginia, the House majority leader, the Mississippi contest took on greater significance. Outside conservative groups hoped to emerge with a second victory that would propel challenges in Tennessee, where Senator Lamar Alexander was widely expected to win, and perhaps in Kansas, where Senator Pat Roberts appeared to have recovered from an early stumble overwhether he lived in Kansas or the Washington area.
Instead, establishment Republicans and a surprisingly high number of Democrats helped deliver a come-from-behind victory for a senator known for his soft-spoken patrician air and his ability to bring home millions in dollars of federal spending.
Mr. Cochran shifted his campaign message from polishing his conservative credentials to extolling his record of keeping Mississippi flush with federal cash. He also attacked Mr. McDaniel for his vows of austerity, especially in education.
CreditEdmund D. Fountain for The New York Times
Those attacks seemed to work with voters — at least enough to spook Democrats, and even some Republicans, who are accustomed to the protection and seniority of a long line of Congress members going back almost 100 years, including Senators John C. Stennis, James Eastland and Trent Lott and Representatives Sonny Montgomery and Jamie L. Whitten.
Jeanie Munn, who lives in Hattiesburg, said Mr. McDaniel “represents a threat to the state.” She cited a vote he cast in the State Senate against a new nursing school building at the University of Southern Mississippi.
Roger Smith, a black Democrat who said he was being paid to organize for Mr. Cochran, said, “I don’t know too much about McDaniel other than what McDaniel’s saying: that he’s Tea Party, he’s against Obama, he don’t like black people.”
“You’re going to get one of the white guys in there,” he said. “You got to make a choice.”
In downtown Hattiesburg, Democratic voters trickled out of the Court Street United Methodist Church, saying they had voted for a Republican for the first time in their lives — Mr. Cochran. Heath Kleinke, 38, held his 4-month-old baby and said he wanted her to get a good education in Mississippi, something he believed would be made more difficult if Mr. McDaniel were to make good on his proposal to cut federal funding.
Senator Thad Cochran of Mississippi celebrated his victory over a Tea Party-backed challenger, Chris McDaniel, at a party in Jackson on Tuesday.
“The fact that he openly criticizes Thad Cochran for talking to Democrats riled me up from the beginning,” added Mr. Kleinke, a graphic designer.
White Democrats also turned out for the senator. Dorothy McGehee, 88, a lifelong Democrat who registered blacks to vote in the civil rights era, found herself putting out Cochran yard signs in Meadville, Miss., and begging her friends to vote.
Kino Sintee, 17, and three black friends waved “Thad” signs on a street corner in a black Hattiesburg neighborhood. They said the preacher from Mount Olive Baptist Church asked them to help out.
“They’re talking about taking everything away from us,” he said. “People still need stuff.”
CreditWilliam Widmer for The New York Times
Michael Davis, 44, said it was his “duty” to stop Mr. McDaniel. “If anyone wants to tell me I’m stealing the election or something ludicrous like that, it doesn’t work that way,” he said.
In Tupelo, Miss., John Armistead, 73, a die-hard Democrat, and his wife, Sandra, 69, a Republican, put aside their differences on Tuesday, and both voted for Mr. Cochran.
“Even though he votes with the Republicans on virtually everything, I’ve never seen Cochran as being so partisan,” Mr. Armistead said. “As a Democrat, that’s important to me. McDaniel is very partisan and will align himself with the right-wing, partisan-type people.”
Those crossover votes from Democrats left many of Mr. McDaniel’s supporters seething.
“Our whole system is corrupt,” said a glum Alicia Holloman of George County as the last results trickled into the McDaniel party at the Hattiesburg Convention Center. “We deserve to be called the most corrupt state in the nation.”
Her husband, Michael, was more circumspect.
“You should be able to vote the way you want to vote. It’s fair,” he said. “But when you’re on the losing side, it stinks.”
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The 99-page decision by the Trademark Trial and Appeal Board said the team’s name and logo are disparaging. It dilutes the Redskins’ legal protection against infringement and hinders the team’s ability to block counterfeit merchandise from entering the country.
But its effect is largely symbolic. The ruling cannot stop the team from selling T-shirts, beer glasses and license-plate holders with the moniker or keep the team from trying to defend itself against others who try to profit from the logo. And the trademark registrations will remain effective during any appeal process.
The ruling’s main impact is as a cudgel by an increasingly vocal group of Native Americans, lawmakers, former players and others who are trying to persuade team officials to change the name. The backlash against the name has never been more intense.
And opponents immediately seized upon the decision to increase pressure on the team.
Sen. Maria Cantwell (D-Wash.), who persuaded 49 other members of Congress to send a letter last month to the National Football League on the issue, interrupted a debate on the Senate floor to herald the decision.
“So many people have helped in this effort, and I want to applaud them,” Cantwell said. She later said she believes the decision will ultimately force the hands of team owner Daniel Snyder and NFL Commissioner Roger Goodell in ways other efforts have not. “You want to ignore millions of Native Americans?” she said. “Well, it’s pretty hard to say the federal government doesn’t know what they’re talking about when they say it’s disparaging.”
Snyder has steadfastly refused to consider a name change, saying the name and logo honor Native Americans.
Jesse Witten, an attorney for the Native Americans who filed the case, called the victory “a long time coming.” The board had previously ruled in favor of a different group of Native Americans, led by Suzan Harjo, that filed a similar case in 1992. But that case was later dismissed in the federal courts. The court did not rule on the merits of the case but ultimately said the plaintiffs did not have standing to file it.
Federal trademark law does not permit registration of trademarks that “may disparage” individuals or groups or “bring them into contempt or disrepute.” The ruling pertains to six trademarks associated with the team, each containing the word “Redskin.”
Robert Raskopf, a lawyer who has been representing the team since the 1992 case was filed, said he was “disheartened” and “surprised” by the ruling. He noted that Wednesday’s decision came from a divided panel of judges, with one of the three dissenting, and that the earlier case was won on appeal. “We’ve been down this road already,” he said. “We have the same evidence here that we had last time, the same arguments, the same exact case.”
He said that the team plans to appeal the decision. “We are certainly confident that moving forward we are going to prevail yet again,” he said.
The United States Patent and Trademark Office (PTO or USPTO) is an agency in the U.S. Department of Commerce that issues patents to inventors and businesses for their inventions, and trademark registration for product and intellectual property identification. The USPTO is “unique among federal agencies because it operates solely on fees collected by its users, and not on taxpayer dollars”. Its “operating structure is like a business in that it receives requests for services—applications for patents and trademark registrations—and charges fees projected to cover the cost of performing the services [it] provide[s]”.
The USPTO is based in Alexandria, Virginia, after a 2006 move from the Crystal City area of neighboring Arlington,Virginia. The offices under Patents and the Chief Information Officer that remained just outside the southern end of Crystal City completed moving to Randolph Square, a brand-new building in Shirlington Village, on April 27, 2009.
The USPTO cooperates with the European Patent Office (EPO) and the Japan Patent Office (JPO) as one of theTrilateral Patent Offices. The USPTO is also a Receiving Office, an International Searching Authority and an International Preliminary Examination Authority for international patent applications filed in accordance with the Patent Cooperation Treaty.
The USPTO mission is to “maintain a permanent, interdisciplinary historical record of all U.S. patent applications in order to fulfill objectives outlined in the United States constitution“. The legal basis for the United States patent system is Article 1, Section 8, wherein the powers of Congress are defined.
It states, in part:
The PTO’s mission is to promote “industrial and technological progress in the United States and strengthen the national economy” by:
The USPTO is headquartered at the Alexandria Campus, consisting of 11 buildings in a city-like development surrounded by ground floor retail and high rise residential buildings between the METRO stations of King Street station and Eisenhower Avenue station where the actual Alexandria Campus is located between Duke Street (on the North) to Eisenhower Avenue (on the South), and between John Carlyle Street (on the East) to Elizabeth Lane (on the West) in Alexandria, Virginia. An additional building in Arlington, Virginia, was opened in 2009.
The USPTO was expected by 2014 to open its first ever satellite offices in Detroit, Dallas, Denver, and Silicon Valleyto reduce backlog and reflect regional industrial strengths. The first satellite office opened in Detroit on July 13, 2012. The 2013 sequestration has put the satellite office for Silicon Valley, which is home to the nation’s top patent-producing cities, on hold indefinitely.
As of September 30, 2009, the end of the U.S. government’s fiscal year, the PTO had 9,716 employees, nearly all of whom are based at its five-building headquarters complex in Alexandria. Of those, 6,242 were patent examiners(almost all of whom were assigned to examine utility patents; only 99 were assigned to examine design patents) and 388 were trademark examining attorneys; the rest are support staff. While the agency has noticeably grown in recent years, the rate of growth was far slower in fiscal 2009 than in the recent past; this is borne out by data from fiscal 2005 to the present:
|At end of FY||Employees||Patent examiners||Trademark examining attorneys|
Patent examiners make up the bulk of the employees at USPTO. They are generally newly graduated scientists and engineers, recruited from various universities around the nation. They hold degrees in various scientific disciplines, but who do not necessarily hold law degrees. Unlike patent examiners, trademark examiners must be licensed attorneys. All examiners work under a strict, “count”-based production system. For every application, “counts” are earned by composing, filing, and mailing a first office action on the merits, and upon disposal of an application.
The Commissioner for Patents oversees three main bodies, headed by former Deputy Commissioner for Patent Operations, currently Peggy Focarino, the Deputy Commissioner for Patent Examination Policy, currently[when?] Andrew Hirshfeld as Acting Deputy, and finally the Commissioner for Patent Resources and Planning, which is currently[when?] vacant. The Patent Operations of the office is divided into nine different technology centers that deal with various arts.
Prior to 2012, decisions of patent examiners may be appealed to the Board of Patent Appeals and Interferences, an administrative law body of the USPTO. Decisions of the BPAI could further be appealed to the United States Court of Appeals for the Federal Circuit, or a civil suit may be brought against the Commissioner of Patents in the United States District Court for the Eastern District of Virginia. The United States Supreme Court may ultimately decide on a patent case. Similarly, decisions of trademark examiners may be appealed to the Trademark Trial and Appeal Board, with subsequent appeals directed to the Federal Circuit, or a civil action may also be brought.
In recent years, the USPTO has seen increasing delays between when a patent application is filed and when it issues. To address its workload challenges, the USPTO has undertaken an aggressive program of hiring and recruitment. The USPTO hired 1,193 new patent examiners in Fiscal Year 2006 (year ending September 30, 2006), 1,215 new examiners in fiscal 2007, and 1,211 in fiscal year 2008. The USPTO expected to continue hiring patent examiners at a rate of approximately 1,200 per year through 2012; however, due to a slowdown in new application filings since the onset of the late-2000s economic crisis, and projections of substantial declines in maintenance fees in coming years, the agency imposed a hiring freeze in early March 2009.
In 2006, USPTO instituted a new training program for patent examiners called the “Patent Training Academy”. It is an eight-month program designed to teach new patent examiners the fundamentals of patent law, practice and examination procedure in a college-style environment. Because of the impending USPTO budget crisis previously alluded to, it had been rumored that the Academy would be closed by the end of 2009. Focarino, then Acting Commissioner for Patents, denied in a May 2009 interview that the Academy was being shut down, but stated that it would be cut back because the hiring goal for new examiners in fiscal 2009 was reduced to 600. Ultimately, 588 new patent examiners were hired in fiscal year 2009.
For many years, Congress has “diverted” about 10% of the fees that the USPTO collected into the general treasury of the United States. In effect, this took money collected from the patent system to use for the general budget. This fee diversion has been generally opposed by patent practitioners (e.g., patent attorneys andpatent agents), inventors, the USPTO, as well as former federal judge Paul R. Michel. These stakeholders would rather use the funds to improve the patent office and patent system, such as by implementing the USPTO’s 21st Century Strategic Plan. The last six annual budgets of the George W. Bush administration did not propose to divert any USPTO fees, and the first budget of the Barack Obama administration continues this practice; however, stakeholders continue to press for a permanent end to fee diversion.
The USPTO examines applications for trademark registration. If approved, the trademarks are registered on either the Principal Register or the Supplemental Register, depending upon whether the mark meets the appropriate distinctiveness criteria. However, this function is declining in popularity as trademark applicants move to cheaper, more straightforward state-by-state registrations.
The PTO only allows certain qualified persons to practice before the PTO. Practice includes filing of patent applications on behalf of inventors, prosecuting patent applications on behalf of inventors, and participating in administrative appeals and other proceedings before the PTO examiners and boards. The PTO sets its own standards for who may practice and requires that any person who practices become registered. A patent agent is a person who has passed the USPTO registration examination (the “patent bar”) but has not passed any state bar exam to become a licensed attorney; a patent attorney is a person who has passed both a state bar and the patent bar and is in good standing as an attorney. A patent agent can only act in a representative capacity in patent matters presented to the USPTO, and may not represent a patent holder or applicant in a court of law. To be eligible for taking the patent bar exam, a candidate must possess a degree in “engineering or physical science or the equivalent of such a degree”.
The United States allows any citizen from any country to sit for the patent bar (if he/she has the requisite technical background). Only Canada has a reciprocity agreement with the United States that confers upon a patent agent similar rights.
An unrepresented inventor may file a patent application and prosecute it on his or her own behalf (pro se). If it appears to a patent examiner that an inventor filing apro se application is not familiar with the proper procedures of the Patent Office, the examiner may suggest that the filing party obtain representation by a registered patent attorney or patent agent. The patent examiner cannot recommend a specific attorney or agent, but the Patent Office does post a list of those who are registered.
While the inventor of a relatively simple-to-describe invention may well be able to produce an adequate specification and detailed drawings, there remains language complexity in what is claimed, either in the particular claim language of a utility application, or in the manner in which drawings are presented in a design application. There is also skill required when searching for prior art that is used to support the application and to prevent applying for a patent for something that may be unpatentable. A patent examiner will make special efforts to help pro se inventors understand the process but the failure to adequately understand or respond to an Office action from the USPTO can endanger the inventor’s rights, and may lead to abandonment of the application.
The USPTO accepts patent applications filed in electronic form. Inventors or their patent agents/attorneys can file applications as Adobe PDF documents. Filing fees can be paid by credit card or by a USPTO “deposit account”.
The USPTO’s free distribution service only distributes the patent documents as a set of TIFF files. Numerous free and commercial services provide patent documents in other formats, such as Adobe PDF and CPC.
||This article’s Criticism or Controversy section may compromise the article’s neutral point of view of the subject. (October 2013)|
The USPTO has been criticized for granting patents for impossible or absurd, already known, or arguably obvious inventions.
The USPTO has been criticized for taking an inordinate amount of time in examining patent applications. This is particularly true in the fast-growing area[dated info] ofbusiness method patents. As of 2005, patent examiners in the business method area were still examining patent applications filed in 2001.
The delay was attributed by spokesmen for the Patent Office to a combination of a sudden increase in business method patent filings after the 1998 State Street Bank decision, the unfamiliarity of patent examiners with the business and financial arts (e.g., banking, insurance, stock trading etc.), and the issuance of a number of controversial patents (e.g., U.S. Patent 5,960,411 “Amazon one click patent“) in the business method area.
Effective August 2006, the USPTO introduced an accelerated patent examination procedure in an effort to allow inventors a speedy evaluation of an application with a final disposition within twelve months. The procedure requires additional information to be submitted with the application and also includes an interview with the examiner. The first accelerated patent was granted on March 15, 2007, with a six-month issuance time.
As of the end of 2008, there were 1,208,076 patent applications pending at the Patent Office. At the end of 1997, the number of applications pending was 275,295. Therefore, over those eleven years there was a 439% increase in the number of pending applications.
December 2012 data showed that there was 597,579 unexamined patent application backlog. During the four years since 2009, more than 50% reduction was achieved. First action pendency was reported as 19.2 months.
As libertarians attempt to persuade others of their position, they encounter an interesting paradox. On the one hand, the libertarian message is simple. It involves moral premises and intuitions that in principle are shared by virtually everyone, including children. Do not hurt anyone. Do not steal from anyone. Mind your own business.
A child will say, “I had it first.” There is an intuitive sense according to which the first user of a previously unowned good holds moral priority over latecomers. This, too, is a central aspect of libertarian theory.
Following Locke, Murray Rothbard, and other libertarian philosophers sought to establish a morally and philosophically defensible account of how property comes to be owned. Locke held the goods of the earth to have been owned in common at the beginning, while Rothbard more plausibly held all goods to have been initially unowned, but this difference does not affect their analysis. Locke is looking to justify how someone may remove a good from common ownership for his individual use, and Rothbard is interested in how someone may take an unowned good and claim it for his individual use.
Locke’s answer will be familiar. He noted, first of all, that “every man has a property in his own person.” By extension, everyone justly holds as his own property those goods with which he has mixed his labor. Cultivating land, picking an apple – whatever the case may be, we say that the first person to homestead property that had previously sat in the state of nature without an individual owner could call himself its owner.
Once a good that was previously in the state of nature has been homesteaded, its owner need not continue to work on or transform it in order to maintain his ownership title. Once the initial homesteading process has taken place, future owners can acquire the property not by mixing their labor with it – which at this point would be trespassing – but by purchasing it or receiving it as a gift from the legitimate owner.
As I’ve said, we sense intuitively the justice at the heart of this rule. If the individual does not own himself, then what other human being does? If the individual who transforms some good that previously lacked specific ownership title does not have a right to that good, then what other person should?
In addition to being just, this rule also minimizes conflict. It is a rule everyone can understand, based on a principle that applies to all people equally. It does not say that only members of a particular race or level of intelligence may own property. And it is a rule that definitively stakes out ownership claims in ways that anyone can grasp, and which will keep disputes to a minimum.
Alternatives to this first user, first homesteader principle are few and unhelpful. If not the first user, then who? The fourth user? The twelfth user? But if only the fourth or twelfth user is the rightful owner, then only the fourth or twelfth user has the right to do anything with the good. That is what ownership is: the ability to dispose of a good however one wishes, provided that in doing so the owner does not harm anyone else. Assigning property title through a method like verbal declaration, say, would do nothing to minimize conflict; people would shout vainly at each other, each claiming ownership of the good in question, and peaceful resolution of the resulting conflict seems impossible.
These principles are easy to grasp, and as I’ve said, they involve moral insights which practically everyone claims to share.
And here is the libertarian paradox. Libertarians begin with these basic, commonly shared principles, and seek only to apply them consistently and equally to all people. But even though people claim to support these principles, and even though most people claim to believe in equality – which is what the libertarian is upholding by applying moral principles to everyone without exception – the libertarian message suddenly becomes extreme, unreasonable, and unacceptable.
Why is it so difficult to persuade people of what they implicitly believe already?
The reason is not difficult to find. Most people inherit an intellectual schizophrenia from the state that educates them, the media that amuses them, and the intellectuals who propagandize them.
This is what Murray Rothbard was driving at when he described the relationship between the state and the intellectuals. “The ruling elite,” he wrote,
whether it be the monarchs of yore or the Communist parties of today, are in desperate need of intellectual elites to weave apologias for state power. The state rules by divine edict; the state insures the common good or the general welfare; the state protects us from the bad guys over the mountain; the state guarantees full employment; the state activates the multiplier effect; the state insures social justice, and on and on. The apologias differ over the centuries; the effect is always the same.
Why, in turn, do the intellectuals provide the state this service? Why are they so eager to defend, legitimate, and make excuses for the corridors of power?
Rothbard had an answer:
We can see what the state rulers get out of their alliance with the intellectuals; but what do the intellectuals get out of it? Intellectuals are the sort of people who believe that, in the free market, they are getting paid far less than their wisdom requires. Now the state is willing to pay them salaries, both for apologizing for state power, and in the modern state, for staffing the myriad jobs in the welfare, regulatory state apparatus.
In addition to this, the intellectual class we are dealing with wants to impose its vision, its pattern, on society. Frederic Bastiat spends much of his classic little book The Law on this very impulse: the conception of the intellectual and the politician as the sculptors, and the human race as so much clay.
What we are taught, therefore, from all official channels, is something like the following. For the sake of mankind’s well-being and improvement, some individuals need to exercise power over others. On our own, we would have little if any philanthropic instinct. We would commit the vilest of crimes. Commerce would grind to a halt, innovation would cease, and the arts and sciences would be neglected. The human race would descend to a condition too degraded and appalling to contemplate.
Therefore, a single institution needs a monopoly on the initiation of physical force and on the ability to expropriate individuals. That institution will ensure that society is molded according to the proper pattern, that “social justice” is achieved, and that mankind’s deepest aspirations have some chance of fulfillment.
So entrenched in our minds are these ideas that it would hardly occur to most people even to think of them as propaganda. This is simply the truth about the world, people assume. It is the way things are. They cannot be otherwise.
But what if they can? What if there really is another way to live? What if the sphere of freedom need not be so confined after all, but may expand without limit? What if the general presumption against monopoly applies to government just as much as it does to anything else? What if the free market, the most extraordinary creator of wealth and innovation ever known, and the most reliable and efficient allocation mechanism of scarce resources, is also better at producing the goods for which we have been told we must rely on government? And what if the state, the greatest mass-murderer in history, the great drag on economic progress, and the institution that pits us against each other in a zero-sum game of mutual plunder, is retarding rather than advancing human welfare?
Just how liberating this political philosophy is becomes clear when we realize some of its implications.
It means that taxation is a moral outrage, since it involves the violent expropriation of peaceful individuals.
It means that military conscription is a fancy term for official kidnapping.
It means that the state’s wars are cases of mass murder, and that the suspension of normal moral rules that the state’s officials insist on during wartime is a transparent attempt to divert the normal kinds of moral inquiries that might occur to someone unschooled in government propaganda.
And it means the state is not the glorious guarantor of the public good, but is instead, a parasite on the individuals it rules. The left-anarchists were grotesquely wrong to condemn the state as the protector of private property. The state could not survive absent its aggression against private property. It produces nothing of its own, and can survive only because of the productive work of those it expropriates.
The state is the very opposite of the free market in its ethics and in its behavior, and yet so few supporters of the market bother to examine their premises. They continue to believe the following:
(1) The best social system is one in which private property is respected, people are free to exchange with each other, and coercion is not used.
(2) That is, until the production of certain goods is in question. Then we need monopoly, coercion, expropriation, bureaucratic decisionmaking – in other words, the most egregious contradiction of the principles we claim to uphold.
To be sure, it may not be so easy at first to imagine the free-market provision of certain goods. And anyway, don’t we need someone “in charge”?
But by the same token, it should be just as difficult to imagine the success of the free market itself: without someone in charge of production decisions, how can we expect private actors to produce what people want, especially when faced with a virtually infinite number of possible combinations of resources, each of which is demanded in varying degrees of intensity by an unimaginable number of possible production processes? Yet that is exactly what happens on the market, without fanfare, every day.
I’ve been surprised not only by the spread of anarcho-capitalism – quite a surprising development, since it runs counter to everything people are taught to take for granted – but also by the attacks on it. You’d think, since we’re still a tiny minority, no important periodical would bother going after us. And yet they have. The reason? Because they realize, as you and I do, what these ideas mean.
Libertarians have put forth the most radical critique of the state ever posed. The Marxists claimed to favor the withering away of the state, it is true, but this can hardly be taken seriously. The coercive power of the state plays a central role in the Marxist transition from capitalism to socialism. As Rothbard put it, “It is absurd to try to reach statelessness via the absolute maximization of state power in a totalitarian dictatorship of the proletariat (or more realistically a select vanguard of the said proletariat). The result can only be maximum statism and hence maximum slavery….”
And without private property, how would production decisions be made? By a state, of course. The Marxists just wouldn’t call it a state. Again Rothbard:
With private property mysteriously abolished, then, the elimination of the state under communism…would necessarily be a mere camouflage for a new state that would emerge to control and make decisions for communally owned resources. Except that the state would not be called such, but rather renamed something like a “people’s statistical bureau”…. It will be small consolation to future victims, incarcerated or shot for committing “capitalist acts between consenting adults” (to cite a phrase made popular by Robert Nozick), that their oppressors will no longer be the state but only a people’s statistical bureau. The state under any other name will smell as acrid.
“Limited-government” conservatives, in turn – who in practice favor an enormous government footprint, but for the sake of argument we’ll give them the benefit of the doubt – want to reform the system. If we try this or that, they say, we can transform a monopoly on violence and expropriation into the fountainhead of order and civilization.
We libertarians are a million miles removed from either of these views. We do not view government officials as “public servants.” How sad to hear naïve conservatives speak of returning to a time when government is responsive to the people, whose elected officials in turn pursue the public good. The situation we face now, contrary to what these conservatives try to believe, is not an unfortunate aberration. It is the dismal norm.
There are two, and only two, versions of the story of liberty and power. One looks to power, as manifested in the state, as the source of progress, prosperity, and order. The other credits liberty with these good things, along with commerce, invention, prosperity, the arts and sciences, the conquering of disease and destitution, and much else. For us liberty truly is the mother, not the daughter, of order.
Some will protest that a third option is available: a judicious combination of the state and liberty, it may be said, is necessary to human flourishing. But this is merely an apologia for the state, since it takes for granted precisely what we libertarians dispute: that the state is the indispensable source of order, within which liberty flourishes. To the contrary, liberty flourishes despite the state, and the fruits of liberty that we observe around us would be all the more abundant were it not for the state’s dead hand.
We can find precursors of anarcho-capitalism here and there in Western intellectual history – Gustave de Molinari, for example, and in the United States Lysander Spooner, Benjamin Tucker, and a handful of others. But no one developed it fully, followed it consistently, or assembled it in a coherent system before Rothbard. It was Rothbard who made a sweeping and systematic case for private-property anarchism, based on economics, philosophy, and history.
Very few people have either the courage or the originality to break radically with existing systems of thought, much less to develop their own. Courage and originality were Rothbard’s trademarks. Had Murray been content to repeat the state’s propaganda, a man of his genius could have taught wherever he wanted, and enjoyed the prestige and privilege of the top tier of academia. He refused to do it. Instead, he labored, often thanklessly, to bequeath to us an elegant – and massive – system of scholarship from which we can learn and to which we can add as we press forward toward Murray’s lifelong goal of a truly free society.
We can be thankful that we live in an age in which the work of Rothbard – despised, resisted, and suppressed by the purveyors of official opinion – is readily available.
And here is another side to the libertarian paradox: although our philosophy derives from a single proposition, the nonaggression principle, the development of and elaborations on that principle provide an inexhaustible source of intellectual pleasure, as we explore how the interlocking features of human society can work together harmoniously in the absence of coercion.
The intellectual class has its task and we have ours. Theirs is to confuse and obscure; ours is to clarify and explain. Theirs is to darken the mind; ours is to enlighten it. Theirs is to subject man to the domination of those who violate the moral principles all civilized people claim to cherish. Ours is to emancipate him from that subjection.
I will leave you with the final libertarian paradox, which is this: while on the one hand we are teachers of the philosophy of freedom, as long as we love and cherish these great ideas, we shall always be students as well. Continue to explore and discover, to read and to write, to discuss and to persuade. Violence is the tool of the state. Knowledge and the mind are the tools of free people.
Classical liberalism is a political philosophy and ideology belonging to liberalism in which primary emphasis is placed on securing the freedom of the individual by limiting the power of the government. The philosophy emerged as a response to the Industrial Revolution and urbanization in the 19th century in Europe and the United States. It advocates civil liberties with a limited government under the rule of law, private property rights, and belief in laissez-faire economic liberalism. Classical liberalism is built on ideas that had already arisen by the end of the 18th century, including ideas of Adam Smith, John Locke, Jean-Baptiste Say, Thomas Malthus, and David Ricardo. It drew on a psychological understanding of individual liberty, natural law, utilitarianism, and a belief in progress.
In the early 20th century, liberals split on several issues, and particularly in America a distinction grew up between classical liberals and social liberals.
In the late 19th century, classical liberalism developed into neo-classical liberalism, which argued for government to be as small as possible in order to allow the exercise of individual freedom. In its most extreme form, it advocated Social Darwinism. Libertarianism is a modern form of neo-classical liberalism.
The term classical liberalism was applied in retrospect to distinguish earlier 19th-century liberalism from the newer social liberalism. The phrase classical liberalism is also sometimes used to refer to all forms of liberalismbefore the 20th century, and some conservatives and libertarians use the term classical liberalism to describe their belief in the primacy of individual freedom and minimal government. It is not always clear which meaning is intended.
Core beliefs of classical liberals included new ideas—which departed from both the older conservative idea of society as a family and from later sociological concept of society as complex set of social networks—that individuals were “egoistic, coldly calculating, essentially inert and atomistic” and that society was no more than the sum of its individual members.
These beliefs were complemented by a belief that “labour”, i.e. individuals without capital, can only be motivated by fear of hunger and by a reward, while “men of higher rank” can be motivated by ambition, as well. This led politicians at the time to pass the Poor Law Amendment Act 1834, which limited the provision of social assistance, because classical liberals believed in “an unfettered market” as the mechanism that will most efficiently lead to a nation’s wealth. Adopting Thomas Malthus‘s population theory, they saw poor urban conditions as inevitable, as they believed population growth would outstrip food production; and they considered that to be desirable, as starvation would help limit population growth. They opposed any income or wealth redistribution, which they believed would be dissipated by the lowest orders.
Classical liberals agreed with Thomas Hobbes that government had been created by individuals to protect themselves from one another. They thought that individuals should be free to pursue their self-interest without control or restraint by society. Individuals should be free to obtain work from the highest-paying employers, while the profit motive would ensure that products that people desired were produced at prices they would pay. In a free market, both labour and capital would receive the greatest possible reward, while production would be organised efficiently to meet consumer demand.
Drawing on selected ideas of Adam Smith, classical liberals believed that all individuals are able to equally freely pursue their own economic self-interest, without government direction, serving the common good. They were critical of welfare state as interfering in a free market. They criticized labour’s group rights being pursued at the expense of individual rights, while they accepted big corporations’ rights being pursued at the expense of inequality of bargaining power noted by Adam Smith:
A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.
It was not until emergence of social liberalism that child labour was forbidden, minimum standards of worker safety were introduced, a minimum wage and old age pensions were established, and financial institutions regulations with the goal of fighting cyclic depressions, monopolies, and cartels, were introduced. They were met by classical liberalism as an unjust interference of the state. So called slim state was argued for, instead, serving only the following functions:
They believed that rights are of a negative nature which require other individuals (and governments) to refrain from interfering with free market, whereas social liberalism believes labour has a right to be provided with certain benefits or services via taxes paid by corporations.
Core beliefs of classical liberals did not necessarily include democracy where law is made by majority vote by citizens, because “there is nothing in the bare idea of majority rule to show that majorities will always respect the rights of property or maintain rule of law.”For example, James Madison argued for a constitutional republic with protections for individual liberty over a pure democracy, reasoning that, in a pure democracy, a “common passion or interest will, in almost every case, be felt by a majority of the whole…and there is nothing to check the inducements to sacrifice the weaker party….”
Friedrich Hayek identified two different traditions within classical liberalism: the “British tradition” and the “French tradition”. Hayek saw the British philosophers Bernard Mandeville, David Hume, Adam Smith, Adam Ferguson, Josiah Tucker, Edmund Burke and William Paley as representative of a tradition that articulated beliefs in empiricism, the common law, and in traditions and institutions which had spontaneously evolved but were imperfectly understood. The French tradition included Rousseau, Condorcet, the Encyclopedistsand the Physiocrats. This tradition believed in rationalism and sometimes showed hostility to tradition and religion. Hayek conceded that the national labels did not exactly correspond to those belonging to each tradition: Hayek saw the Frenchmen Montesquieu,Constant and Tocqueville as belonging to the “British tradition” and the British Thomas Hobbes, Priestley, Richard Price and Thomas Paine as belonging to the “French tradition”. Hayek also rejected the label laissez faire as originating from the French tradition and alien to the beliefs of Hume, Smith and Burke.
Classical liberalism in Britain developed from Whiggery and radicalism, and represented a new political ideology. Whiggery had become a dominant ideology following the Glorious Revolution of 1688, and was associated with the defence of Parliament, upholding the rule of law and defending landed property. The origins of rights were seen as being in an ancient constitution, which had existed from time immemorial. These rights, which some Whigs considered to include freedom of the press and freedom of speech, were justified by custom rather than by natural rights. They believed that the power of the executive had to be constrained. While they supported limited suffrage, they saw voting as a privilege, rather than as a right. However there was no consistency in Whig ideology, and diverse writers including John Locke, David Hume, Adam Smith and Edmund Burke were all influential among Whigs, although none of them was universally accepted.
British radicals, from the 1790s to the 1820s, concentrated on parliamentary and electoral reform, emphasizing natural rights and popular sovereignty. Richard Price and Joseph Priestley adapted the language of Locke to the ideology of radicalism. The radicals saw parliamentary reform as a first step toward dealing with their many grievances, including the treatment of Protestant Dissenters, the slave trade, high prices and high taxes.
There was greater unity to classical liberalism ideology than there had been with Whiggery. Classical liberals were committed to individualism, liberty and equal rights. They believed that required a free economy with minimal government interference. Writers such asJohn Bright and Richard Cobden opposed both aristocratic privilege and property, which they saw as an impediment to the development of a class of yeoman farmers. Some elements of Whiggery opposed this new thinking, and were uncomfortable with the commercial nature of classical liberalism. These elements became associated with conservatism.
Classical liberalism was the dominant political theory in Britain from the early 19th century until the First World War. Its notable victories were the Catholic Emancipation Act of 1829, the Reform Act of 1832, and the repeal of the Corn Laws in 1846. The Anti-Corn Law League brought together a coalition of liberal and radical groups in support of free trade under the leadership of Richard Cobden and John Bright, who opposed militarism and public expenditure. Their policies of low public expenditure and low taxation were adopted by William Ewart Gladstone when he became chancellor of the exchequer and later prime minister. Classical liberalism was often associated with religious dissent and nonconformism.
Although classical liberals aspired to a minimum of state activity, they accepted the principle of government intervention in the economy from the early 19th century with passage of the Factory Acts. From around 1840 to 1860, laissez-faire advocates of the Manchester School and writers in The Economist were confident that their early victories would lead to a period of expanding economic and personal liberty and world peace but would face reversals as government intervention and activity continued to expand from the 1850s. Jeremy Bentham and James Mill, although advocates of laissez faire, non-intervention in foreign affairs, and individual liberty, believed that social institutions could be rationally redesigned through the principles of Utilitarianism. The Conservative prime minister, Benjamin Disraeli, rejected classical liberalism altogether and advocated Tory Democracy. By the 1870s, Herbert Spencer and other classical liberals concluded that historical development was turning against them. By the First World War, the Liberal Party had largely abandoned classical liberal principles.
The changing economic and social conditions of the 19th century led to a division between neo-classical and social liberals who, while agreeing on the importance of individual liberty, differed on the role of the state. Neo-classical liberals, who called themselves “true liberals”, saw Locke’s Second Treatise as the best guide, and emphasised “limited government”, while social liberals supported government regulation and the welfare state.Herbert Spencer in Britain and William Graham Sumner were the leading neo-classical liberal theorists of the 19th century. Neo-classical liberalism has continued into the contemporary era, with writers such as Robert Nozick.
In the United States, liberalism took a strong root because it had little opposition to its ideals, whereas in Europe liberalism was opposed by many reactionary interests. In a nation of farmers, especially farmers whose workers were slaves, little attention was paid to the economic aspects of liberalism. Thomas Jefferson adopted many of the ideals of liberalism but, in the Declaration of Independence, changed Locke’s “life, liberty, and property” to the more socially liberal “life, liberty, and the pursuit of happiness”. As America grew, industry became a larger and larger part of American life; and, during the term of America’s first populist president, Andrew Jackson, economic questions came to the forefront. The economic ideas of the Jacksonian era were almost universally the ideas of classical liberalism. Freedom was maximised when the government took a “hands off” attitude toward industrial development and supported the value of the currency by freely exchanging paper money for gold. The ideas of classical liberalism remained essentially unchallenged until a series of depressions, thought to be impossible according to the tenets of classical economics, led to economic hardship from which the voters demanded relief. In the words of William Jennings Bryan, “You shall not crucify the American farmer on a cross of gold.” Classical liberalism remained the orthodox belief among American businessmen until the Great Depression. The Great Depression saw a sea change in liberalism, leading to the development of modern liberalism. In the words of Arthur Schlesinger Jr.:
When the growing complexity of industrial conditions required increasing government intervention in order to assure more equal opportunities, the liberal tradition, faithful to the goal rather than to the dogma, altered its view of the state,” and “there emerged the conception of a social welfare state, in which the national government had the express obligation to maintain high levels of employment in the economy, to supervise standards of life and labour, to regulate the methods of business competition, and to establish comprehensive patterns of social security.
Central to classical liberal ideology was their interpretation of John Locke’s Second Treatise of Government and “A Letter Concerning Toleration“, which had been written as a defence of the Glorious Revolution of 1688. Although these writings were considered too radical at the time for Britain’s new rulers, they later came to be cited by Whigs, radicals and supporters of the American Revolution. However, much of later liberal thought was absent in Locke’s writings or scarcely mentioned, and his writings have been subject to various interpretations. There is little mention, for example, of constitutionalism, the separation of powers, and limited government.
James L. Richardson identified five central themes in Locke’s writing: individualism, consent, the concepts of the rule of law and government as trustee, the significance of property, and religious toleration. Although Locke did not develop a theory of natural rights, he envisioned individuals in the state of nature as being free and equal. The individual, rather than the community or institutions, was the point of reference. Locke believed that individuals had given consent to government and therefore authority derived from the people rather than from above. This belief would influence later revolutionary movements.
As a trustee, Government was expected to serve the interests of the people, not the rulers, and rulers were expected to follow the laws enacted by legislatures. Locke also held that the main purpose of men uniting into commonwealths and governments was for the preservation of their property. Despite the ambiguity of Locke’s definition of property, which limited property to “as much land as a man tills, plants, improves, cultivates, and can use the product of”, this principle held great appeal to individuals possessed of great wealth.
Locke held that the individual had the right to follow his own religious beliefs and that the state should not impose a religion against Dissenters. But there were limitations. No tolerance should be shown for atheists, who were seen as amoral, or to Catholics, who were seen as owing allegiance to the Pope over their own national government.
Adam Smith’s The Wealth of Nations, published in 1776, was to provide most of the ideas of economics, at least until the publication of J. S. Mill‘s Principles in 1848. Smith addressed the motivation for economic activity, the causes of prices and the distribution of wealth, and the policies the state should follow in order to maximise wealth.
Smith wrote that as long as supply, demand, prices, and competition were left free of government regulation, the pursuit of material self-interest, rather than altruism, would maximize the wealth of a society through profit-driven production of goods and services. An “invisible hand” directed individuals and firms to work toward the nation’s good as an unintended consequence of efforts to maximize their own gain. This provided a moral justification for the accumulation of wealth, which had previously been viewed by some as sinful.
He assumed that workers could be paid as low as was necessary for their survival, which was later transformed by Ricardo and Malthus into the “Iron Law of Wages“. His main emphasis was on the benefit of free internal and international trade, which he thought could increase wealth through specialization in production. He also opposed restrictive trade preferences, state grants of monopolies, and employers’ organisations and trade unions.Government should be limited to defence, public works and the administration of justice, financed by taxes based on income.
Smith’s economics was carried into practice in the nineteenth century with the lowering of tariffs in the 1820s, the repeal of the Poor Relief Act, that had restricted the mobility of labour, in 1834, and the end of the rule of the East India Company over India in 1858.
In addition to Adam Smith’s legacy, Say’s law, Malthus theories of population and Ricardo’s iron law of wages became central doctrines of classical economics. The pessimistic nature of these theories led to Carlyle calling economics the dismal science and it provided a basis of criticism of capitalism by its opponents.
Jean-Baptiste Say was a French economist who introduced Adam Smith’s economic theories into France and whose commentaries on Smith were read in both France and Britain. Say challenged Smith’s labour theory of value, believing that prices were determined by utility and also emphasised the critical role of the entrepreneur in the economy. However neither of those observations became accepted by British economists at the time. His most important contribution to economic thinking was Say’s law, which was interpreted by classical economists that there could be no overproduction in a market, and that there would always be a balance between supply and demand. This general belief influenced government policies until the 1930s. Following this law, since the economic cycle was seen as self-correcting, government did not intervene during periods of economic hardship because it was seen as futile.
Thomas Malthus wrote two books, An essay on the principle of population, published in 1798, and Principles of political economy, published in 1820. The second book which was a rebuttal of Say’s law had little influence on contemporary economists. His first book however became a major influence on classical liberalism. In that book, Malthus claimed that population growth would outstrip food production, because population grew geometrically, while food production grew arithmetically. As people were provided with food, they would reproduce until their growth outstripped the food supply. Nature would then provide a check to growth in the forms of vice and misery. No gains in income could prevent this, and any welfare for the poor would be self-defeating. The poor were in fact responsible for their own problems which could have been avoided through self-restraint.
David Ricardo, who was an admirer of Adam Smith, covered many of the same topics but while Smith drew conclusions from broadly empirical observations, Ricardo used induction, drawing conclusions by reasoning from basic assumptions. While Ricardo accepted Smith’s labour theory of value, he acknowledged that utility could influence the price of some rare items. Rents on agricultural land were seen as the production that was surplus to the subsistence required by the tenants. Wages were seen as the amount required for workers’ subsistence and to maintain current population levels. According to his Iron Law of Wages, wages could never rise beyond subsistence levels. Ricardo explained profits as a return on capital, which itself was the product of labour. But a conclusion many drew from his theory was that profit was a surplus appropriated by capitalists to which they were not entitled.
Utilitarianism provided the political justification for implementation of economic liberalism by British governments, which was to dominate economic policy from the 1830s. Although utilitarianism prompted legislative and administrative reform and John Stuart Mill‘s later writings on the subject foreshadowed the welfare state, it was mainly used as a justification for laissez faire.
The central concept of utilitarianism, which was developed by Jeremy Bentham, was that public policy should seek to provide “the greatest happiness of the greatest number”. While this could be interpreted as a justification for state action to reduce poverty, it was used by classical liberals to justify inaction with the argument that the net benefit to all individuals would be higher.
Classical liberals saw utility as the foundation for public policies. This broke both with conservative “tradition” and Lockean “natural rights”, which were seen as irrational. Utility, which emphasises the happiness of individuals, became the central ethical value of all liberalism. Although utilitarianism inspired wide-ranging reforms, it became primarily a justification for laissez-faire economics. However, classical liberals rejected Adam Smith‘s belief that the “invisible hand” would lead to general benefits and embraced Thomas Robert Malthus‘ view that population expansion would prevent any general benefit and David Ricardo‘s view of the inevitability of class conflict. Laissez faire was seen as the only possible economic approach, and any government intervention was seen as useless and harmful. The Poor Law Amendment Act 1834 was defended on “scientific or economic principles” while the authors of the Elizabethan Poor Law of 1601 were seen as not having had the benefit of reading Malthus.
Commitment to laissez faire, however, was not uniform. Some economists advocated state support of public works and education. Classical liberals were also divided on free trade. Ricardo, for example, expressed doubt that the removal of grain tariffs advocated byRichard Cobden and the Anti-Corn Law League would have any general benefits. Most classical liberals also supported legislation to regulate the number of hours that children were allowed to work and usually did not oppose factory reform legislation.
Despite the pragmatism of classical economists, their views were expressed in dogmatic terms by such popular writers as Jane Marcet and Harriet Martineau. The strongest defender of laissez faire was The Economist founded by James Wilson in 1843. The Economist criticised Ricardo for his lack of support for free trade and expressed hostility to welfare, believing that the lower orders were responsible for their economic circumstances. The Economist took the position that regulation of factory hours was harmful to workers and also strongly opposed state support for education, health, the provision of water, and granting of patents and copyrights.
The Economist also campaigned against the Corn Laws that protected landlords in the United Kingdom of Great Britain and Ireland against competition from less expensive foreign imports of cereal products. A rigid belief in laissez faire guided the government response in 1846–1849 to the Great Famine in Ireland, during which an estimated 1.5 million people died. The minister responsible for economic and financial affairs, Charles Wood, expected that private enterprise and free trade, rather than government intervention, would alleviate the famine. The Corn Laws were finally repealed in 1846 by removal tariffs on grain which kept the price of bread artificially high. However, repeal of the Corn Laws came too late to stop Irish famine, partly because it was done in stages over three years.
Several liberals, including Adam Smith and Richard Cobden, argued that the free exchange of goods between nations could lead to world peace, a view recognised by such modern American political scientists as Robert Alan Dahl, Michael W. Doyle, Bruce Martin Rassett and John Robert Oneal. Dr. Erik Gartzke of Columbia University states, “Scholars like Montesquieu, Adam Smith, Richard Cobden, Norman Angell, and Richard Rosecrance have long speculated that free markets have the potential to free states from the looming prospect of recurrent warfare.” American political scientists John R. Oneal and Bruce M. Russett, well known for their work on the democratic peace theory, state:
The classical liberals advocated policies to increase liberty and prosperity. They sought to empower the commercial class politically and to abolish royal charters, monopolies, and the protectionist policies of mercantilism so as to encourage entrepreneurship and increase productive efficiency. They also expected democracy and laissez-faire economics to diminish the frequency of war.
Adam Smith argued in the Wealth of Nations that, as societies progressed from hunter gatherers to industrial societies, the spoils of war would rise but that the costs of war would rise further, making war difficult and costly for industrialised nations.
… the honours, the fame, the emoluments of war, belong not to [the middle and industrial classes]; the battle-plain is the harvest field of the aristocracy, watered with the blood of the people…Whilst our trade rested upon our foreign dependencies, as was the case in the middle of the last century…force and violence, were necessary to command our customers for our manufacturers…But war, although the greatest of consumers, not only produces nothing in return, but, by abstracting labour from productive employment and interrupting the course of trade, it impedes, in a variety of indirect ways, the creation of wealth; and, should hostilities be continued for a series of years, each successive war-loan will be felt in our commercial and manufacturing districts with an augmented pressure—Richard Cobden
When goods cannot cross borders, armies will.
By virtue of their mutual interest does nature unite people against violence and war…the spirit of trade cannot coexist with war, and sooner or later this spirit dominates every people. For among all those powers…that belong to a nation, financial power may be the most reliable in forcing nations to pursue the noble cause of peace…and wherever in the world war threatens to break out, they will try to head it off through mediation, just as if they were permanently leagued for this purpose.
Cobden believed that military expenditures worsened the welfare of the state and benefited a small but concentrated elite minority, summing up British imperialism, which he believed was the result of the economic restrictions of mercantilist policies. To Cobden, and many classical liberals, those who advocated peace must also advocate free markets.
reject(s) any such distinction and argue(s) instead for the existence of a continuous liberal understanding that includes both Adam Smith and John Maynard Keynes… The idea that liberalism comes in two forms assumes that the most fundamental question facing mankind is how much government intervenes into the economy… When instead we discuss human purpose and the meaning of life, Adam Smith and John Maynard Keynes are on the same side. Both of them possessed an expansive sense of what we are put on this earth to accomplish. Both were on the side of enlightenment. Both were optimists who believed in progress but were dubious about grand schemes that claimed to know all the answers. For Smith, mercantilism was the enemy of human liberty. For Keynes, monopolies were. It makes perfect sense for an eighteenth-century thinker to conclude that humanity would flourish under the market. For a twentieth century thinker committed to the same ideal, government was an essential tool to the same end… [M]odern liberalism is instead the logical and sociological outcome of classical liberalism.
According to William J. Novak, however, liberalism in the United States shifted, “between 1877 and 1937…from laissez-faire constitutionalism to New Deal statism, from classical liberalism to democratic social-welfarism”.
L. T. Hobhouse, in Liberalism (London: Williams and Norgate, 1911), attributed this purported shift, which included qualified acceptance of government intervention in the economy and the collective right to equality in dealings, to an increased desire for what Hobhouse called “just consent”. Hayek wrote that Hobhouse’s book would have been more accurately titled Socialism, and Hobhouse himself called his beliefs “liberal socialism”.
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John Linder devoted some 35 years of his life to public service, starting in the Georgia House of Representatives in 1975, and in Congress 1993 – 2011. Linder is nationally known as the father of the FairTax Act which he sponsored in Washington. Linder and radio commentator Neal Boortz wrote two books about why the FairTax is fairer than current taxation schemes. Linder spoke to the Public Policy Foundation on May 21, 1993, just a few months after he was sworn into Congress for the first of his nine terms.
The FairTax is a proposal to reform the federal tax code of the United States. It would replace all federal income taxes (including the alternative minimum tax, corporate income taxes, and capital gains taxes), payroll taxes(including Social Security and Medicare taxes), gift taxes, and estate taxes with a single broad national consumption tax on retail sales. The Fair Tax Act (H.R. 25/S. 122) would apply a tax, once, at the point of purchase on all new goods and services for personal consumption. The proposal also calls for a monthly payment to all family households of lawful U.S. residents as an advance rebate, or “prebate”, of tax on purchases up to the poverty level. First introduced into the United States Congress in 1999, a number of congressional committees have heard testimony on the bill; however, it has not moved from committee and has yet to have any effect on the tax system. In recent years, a tax reform movement has formed behind the FairTax proposal. Increased attention was created after talk radio personality Neal Boortz and Georgia Congressman John Linderpublished The FairTax Book in 2005 and additional visibility was gained in the 2008 presidential campaign.As defined in the legislation, the tax rate is 23% for the first year. This percentage is based on the total amount paid including the tax ($23 out of every $100 spent in total). This would be equivalent to a 30% traditional U.S. sales tax ($23 on top of every $77 spent—$100 total). The rate would then be automatically adjusted annually based on federal receipts in the previous fiscal year. With the rebate taken into consideration, the FairTax would be progressive on consumption, but would also be regressive on income at higher income levels (as consumption falls as a percentage of income). Opponents argue this would accordingly decrease the tax burden on high-income earners and increase it on the middle class. Supporters contend that the plan would effectively tax wealth, increase purchasing power, and decrease tax burdens by broadening the tax base.The plan’s supporters believe that a consumption tax would have a positive effect on savings and investment, that it would ease tax compliance, and that the tax would result in increased economic growth, incentives forinternational business to locate in the U.S., and increased U.S. competitiveness in international trade. The plan is intended to increase cost transparency for funding the federal government, and supporters believe it would have positive effects on civil liberties, the environment, and advantages with taxing illegal activity and undocumented immigrants. Opponents contend that a consumption tax of this size would be extremely difficult to collect, and would lead to pervasive tax evasion. They also argue that the proposed sales tax rate would raise less revenue than the current tax system, leading to an increased budget deficit.There are also concerns regarding the proposed repeal of the Sixteenth Amendment, removal of tax deduction incentives, transition effects on after-tax savings, incentives on credit use, and the loss of tax advantages tostate and local bonds.
The Fair Tax Act is designed to replace all federal income taxes (including the alternative minimum tax, corporate income taxes, and capital gains taxes), payroll taxes (including Social Security and Medicare taxes), gift taxes, andestate taxes with a national retail sales tax on new goods and services. The legislation would remove the Internal Revenue Service (after three years), and establish an Excise Tax Bureau and a Sales Tax Bureau in the Department of the Treasury. The states are granted the primary authority for the collection of sales tax revenues and the remittance of such revenues to the Treasury. The plan was created by Americans For Fair Taxation, an advocacy group formed to change the tax system. The group states that, together with economists, it developed the plan and the name “Fair Tax”, based on interviews, polls, and focus groups of the general public. The FairTax legislation has been introduced in the House by Georgia Republicans John Linder (1999–2010) and Rob Woodall (2011-2014), while being introduced in the Senate by Georgia Republican Saxby Chambliss (2003-2014).
Linder first introduced the Fair Tax Act (H.R. 2525) on July 14, 1999 to the 106th United States Congress and a substantially similar bill has been reintroduced in each subsequent session of Congress. The bill attracted a total of 56 House and Senate cosponsors in the 108th Congress, 61 in the 109th, 76 in the 110th, 70 in the 111th, 78 in the 112th, and 81 in the 113th (H.R. 25/S. 122). Former Speaker of the HouseDennis Hastert (Republican) had cosponsored the bill in the 109th–110th Congress, but it has not received support from the Democratic leadership, which still controls the Senate. Democratic Representative Collin Peterson of Minnesota and Democratic Senator Zell Miller of Georgia cosponsored and introduced the bill in the 108th Congress, but Peterson is no longer cosponsoring the bill and Miller has left the Senate. In the 109th–111th Congress, Representative Dan Boren has been the only Democrat to cosponsor the bill. A number of congressional committees have heard testimony on the FairTax, but it has not moved from committee since its introduction in 1999. The legislation was also discussed with President George W. Bush and his Secretary of the Treasury Henry M. Paulson.
To become law, the bill will need to be included in a final version of tax legislation from the U.S. House Committee on Ways and Means, pass both the House and the Senate, and finally be signed by the President. In 2005, President Bush established an advisory panel on tax reform that examined several national sales tax variants including aspects of the FairTax and noted several concerns. These included uncertainties as to the revenue that would be generated, and difficulties of enforcement and administration, which made this type of tax undesirable to recommend in their final report. The panel did not examine the Fairtax as proposed in the legislation. The FairTax received visibility in the 2008 presidential election on the issue of taxes and the IRS, with several candidates supporting the bill. A poll in 2009 by Rasmussen Reports found that 43% of Americans would support a national sales tax replacement, with 38% opposed to the idea; the sales tax was viewed as fairer by 52% of Republicans, 44% of Democrats, and 49% of unaffiliateds. President Barack Obama does not support the bill, arguing for more progressive changes to the income and payroll tax systems.
The sales tax rate, as defined in the legislation for the first year, is 23% of the total payment including the tax ($23 of every $100 spent in total—calculated similar to income taxes). This would be equivalent to a 30% traditional U.S. sales tax ($23 on top of every $77 spent—$100 total, or $30 on top of every $100 spent—$130 total). After the first year of implementation, this rate is automatically adjusted annually using a predefined formula reflecting actual federal receipts in the previous fiscal year.
The effective tax rate for any household would be variable due to the fixed monthly tax rebate that are used to rebate taxes paid on purchases up to the poverty level. The tax would be levied on all U.S. retail sales for personal consumption on new goods andservices. Critics argue that the sales tax rate defined in the legislation would not be revenue neutral (that is, it would collect less for the government than the current tax system), and thus would increase the budget deficit, unless government spending were equally reduced.
During the first year of implementation, the FairTax legislation would apply a 23% federal retail sales tax on the total transaction value of a purchase; in other words, consumers pay to the government 23 cents of every dollar spent in total (sometimes called tax-inclusive, and presented this way to provide a direct comparison with individual income and employment taxes which reduce a person’s available money before they can make purchases). The equivalent assessed tax rate is 30% if the FairTax is applied to the pre-tax price of a good like traditional U.S. state sales taxes (sometimes called tax-exclusive; this rate is not directly comparable with existing income and employment taxes). After the first year of implementation, this tax rate would be automatically adjusted annually using a formula specified in the legislation that reflects actual federal receipts in the previous fiscal year.
A household’s effective tax rate on consumption would vary with the annual expenditures on taxable items and the fixed monthly tax rebate. The rebate would have the greatest effect at low spending levels, where they could lower a household’s effective rate to zero or below. The lowest effective tax rate under the FairTax could be negative due to the rebate for households with annual spending amounts below poverty level spending for a specified household size. At higher spending levels, the rebate has less impact, and a household’s effective tax rate would approach 23% of total spending. A person spending at the poverty level would have an effective tax rate of 0%, whereas someone spending at four times the poverty level would have an effective tax rate of 17.2%. Buying or otherwise receiving items and services not subject to federal taxation (such as a used home or car) can contribute towards a lower effective tax rate. The total amount of spending and the proportion of spending allocated to taxable items would determine a household’s effective tax rate on consumption. If a rate is calculated on income, instead of the tax base, the percentage could exceed the statutory tax rate in a given year.
|One adult household||Two adult household|
|and 1 child||$15,130||$3,480||$290||and 1 child||$26,300||$6,049||$504|
|and 2 children||$19,090||$4,391||$366||and 2 children||$30,260||$6,960||$580|
|and 3 children||$23,050||$5,302||$442||and 3 children||$34,220||$7,871||$656|
|and 4 children||$27,010||$6,212||$518||and 4 children||$38,180||$8,781||$732|
|and 5 children||$30,970||$7,123||$594||and 5 children||$42,140||$9,692||$808|
|and 6 children||$34,930||$8,034||$699||and 6 children||$46,100||$10,603||$884|
|and 7 children||$38,890||$8,945||$745||and 7 children||$50,060||$11,514||$959|
|The annual consumption allowance is based on the 2012 DHHS Poverty Guidelines as published in theFederal Register, January 26, 2012. There is no marriage penalty as the couple amount is twice the amount that a single adult receives. For each additional child above 7, add $3,960 to the annual consumption allowance, $911 to the annual rebate, and $76 to the monthly rebate amount. The annual consumption allowance is the amount of spending that is “untaxed” under the FairTax. Note: Alaska and Hawaii have different poverty levels and would have different FairTax rebate amounts.|
Under the FairTax, family households of lawful U.S. residents would be eligible to receive a “Family Consumption Allowance” (FCA) based on family size (regardless of income) that is equal to the estimated total FairTax paid on poverty level spending according to the poverty guidelines published by the U.S. Department of Health and Human Services. The FCA is a tax rebate (known as a “prebate” as it would be an advance) paid in twelve monthly installments, adjusted for inflation. The rebate is meant to eliminate the taxation of household necessities and make the plan progressive. Households would register once a year with their sales tax administering authority, providing the names and social security numbers of each household member. The Social Security Administration would disburse the monthly rebate payments in the form of a paper check via U.S. Mail, an electronic funds transfer to a bank account, or a “smartcard” that can be used like a debit card.
Opponents of the plan criticize this tax rebate due to its costs. Economists at the Beacon Hill Institute estimated the overall rebate cost to be $489 billion (assuming 100% participation). In addition, economist Bruce Bartlett has argued that the rebate would create a large opportunity for fraud, treats children disparately, and would constitute a welfarepayment regardless of need.
The President’s Advisory Panel for Federal Tax Reform cited the rebate as one of their chief concerns when analyzing their national sales tax, stating that it would be the largestentitlement program in American history, and contending that it would “make most American families dependent on monthly checks from the federal government”. Estimated by the advisory panel at approximately $600 billion, “the Prebate program would cost more than all budgeted spending in 2006 on the Departments of Agriculture, Commerce, Defense, Education, Energy, Homeland Security, Housing and Urban Development, and Interior combined.” Proponents point out that income tax deductions, tax preferences, loopholes, credits, etc. under the current system was estimated at $945 billion by the Joint Committee on Taxation. They argue this is $456 billion more than the FairTax “entitlement” (tax refund) would spend to cover each person’s tax expenses up to the poverty level. In addition, it was estimated for 2005 that the Internal Revenue Service was already sending out $270 billion in refund checks.
Sales and income taxes behave differently due to differing definitions of tax base, which can make comparisons between the two confusing. Under the existing individual income plus employment (Social Security; Medicare; Medicaid) tax formula, taxes to be paid are included in the base on which the tax rate is imposed (known as tax-inclusive). If an individual’s gross income is $100 and the sum of their income plus employment tax rate is 23%, taxes owed equals $23. Traditional state sales taxes are imposed on a tax base equal to the pre-tax portion of a good’s price (known as tax-exclusive). A good priced at $77 with a 30% sales tax rate yields $23 in taxes owed. To adjust an inclusive rate to an exclusive rate, divide the given rate by one minus that rate (i.e. ).
The FairTax statutory rate, unlike most U.S. state-level sales taxes, is presented on a tax base that includes the amount of FairTax paid. For example, a final after-tax price of $100 includes $23 of taxes. Although no such requirement is included in the text of the legislation, Congressman John Linder has stated that the FairTax would be implemented as an inclusive tax, which would include the tax in the retail price, not added on at checkout—an item on the shelf for five dollars would be five dollars total. The legislation requires the receipt to display the tax as 23% of the total. Linder states the FairTax is presented as a 23% tax rate for easy comparison to income and employment tax rates (the taxes it would be replacing). The plan’s opponents call the semantics deceptive. FactCheck called the presentation misleading, saying that it hides the real truth of the tax rate. Bruce Bartlett stated that polls show tax reform support is extremely sensitive to the proposed rate, and called the presentation confusing and deceptive based on the conventional method of calculating sales taxes. Proponents believe it is both inaccurate and misleading to say that an income tax is 23% and the FairTax is 30% as it implies that the sales tax burden is higher.
A key question surrounding the FairTax is whether the tax has the ability to be revenue-neutral; that is, whether the tax would result in an increase or reduction in overall federal tax revenues. Economists, advisory groups, and political advocacy groups disagree about the tax rate required for the FairTax to be truly revenue-neutral. Various analysts use different assumptions, time-frames, and methods resulting in dramatically different tax rates making direct comparison among the studies difficult. The choice between static ordynamic scoring further complicates any estimate of revenue-neutral rates.
A 2006 study published in Tax Notes by the Beacon Hill Institute at Suffolk University and Dr. Laurence Kotlikoff estimated the FairTax would be revenue-neutral for the tax year 2007 at a rate of 23.82% (31.27% tax-exclusive). The study states that purchasing power is transferred to state and local taxpayers from state and local governments. To recapture the lost revenue, state and local governments would have to raise tax rates or otherwise change tax laws in order to continue collecting the same real revenues from their taxpayers. The Argus Group and Arduin, Laffer & Moore Econometrics each published an analysis that defended the 23% rate. While proponents of the FairTax concede that the above studies did not explicitly account for tax evasion, they also claim that the studies did not altogether ignore tax evasion under the FairTax. These studies presumably incorporated some degree of tax evasion in their calculations by using National Income and Product Account based figures, which is argued to understate total household consumption. The studies also did not account for capital gains that may be realized by the U.S. government if consumer prices were allowed to rise, which would reduce the real value of nominal U.S. government debt. Nor did these studies account for any increased economic growth that many economists researching the plan believe would occur.
In contrast to the above studies, William G. Gale of the Brookings Institution published a study in Tax Notes that estimated a rate of 28.2% (39.3% tax-exclusive) for 2007 assuming full taxpayer compliance and an average rate of 31% (44% tax-exclusive) from 2006–2015 (assumes that the Bush tax cuts expire on schedule and accounts for the replacement of an additional $3 trillion collected through the Alternative Minimum Tax). The study also concluded that if the tax base were eroded by 10% due to tax evasion, tax avoidance, and/or legislative adjustments, the average rate would be 34% (53% tax-exclusive) for the 10 year period. A dynamic analysis in 2008 by the Baker Institute For Public Policy concluded that a 28% (38.9% tax-exclusive) rate would be revenue neutral for 2006. The President’s Advisory Panel for Federal Tax Reform performed a 2006 analysis to replace the individual and corporate income tax with a retail sales tax and estimated the rate to be 25% (34% tax-exclusive) assuming 15% tax evasion, and 33% (49% tax-exclusive) with 30% tax evasion. The rate would need to be substantially higher to replace the additional taxes replaced by the FairTax (payroll, estate, and gift taxes). Several economists criticized the President’s Advisory Panel’s study as having allegedly altered the terms of the FairTax, using unsound methodology, and/or failing to fully explain their calculations.
The tax would be levied once at the final retail sale for personal consumption on new goods and services. Purchases of used items, exports and business-to-business intermediate transactions would not be taxed. Also excluded are investments, such as purchases ofstock, corporate mergers and acquisitions and capital investments. Savings and education tuition expenses would be exempt as they would be considered an investment (rather than final consumption).
A good would be considered “used” and not taxable if a consumer already owns it before the FairTax takes effect or if the FairTax has been paid previously on the good, which may be different from the item being sold previously. Personal services such as health care, legal services, financial services, and auto repairs would be subject to the FairTax, as would renting apartments and other real property. Food, clothing, prescription drugs and medical services would be taxed. (State sales taxes generally exempt these types of basic-need items in an effort to reduce the tax burden on low-income families. The FairTax would use a monthly rebate system instead of the common state exclusions.) Internet purchases would be taxed, as would retail international purchases (such as a boat or car) that are imported to the United States (collected by the U.S. Customs and Border Protection).
The FairTax’s effect on the distribution of taxation or tax incidence (the effect on the distribution of economic welfare) is a point of dispute. The plan’s supporters argue that the tax would broaden the tax base, that it would be progressive, and that it would decrease tax burdens and start taxing wealth (reducing the economic gap). Opponents argue that a national sales tax would be inherently regressiveand would decrease tax burdens paid by high-income individuals. A person earning $2 million a year could live well spending $1 million, and as a result pay a mere 11% of that year’s income in taxes.Households at the lower end of the income scale spend almost all their income, while households at the higher end are more likely to devote a portion of income to saving. Therefore, according to economistWilliam G. Gale, the percentage of income taxed is regressive at higher income levels (as consumption falls as a percentage of income).
Income earned and saved would not be taxed until spent under the proposal. Households at the extreme high end of consumption often finance their purchases out of savings, not income. EconomistLaurence Kotlikoff states that the FairTax could make the tax system much more progressive and generationally equitable, and argues that taxing consumption is effectively the same as taxing wages plus taxing wealth. A household of three persons (this example will use two adults of any gender plus one child; the rebate does not consider marital status) spending $30,000 a year on taxable items would devote about 3.4% of total spending ( [$6,900 tax minus $5,888 rebate]/$30,000 spending ) to the FairTax after the rebate. The same household spending $125,000 on taxable items would spend around 18.3% ( [$28,750 tax minus $5,888 rebate]/$125,000 spending ) on the FairTax. At higher spending levels, the rebate has less impact and the rate approaches 23% of total spending. Thus, according to economist Laurence Kotlikoff, the effective tax rate is progressive on consumption.
Studies by Kotlikoff and Daivd Rapson state that the FairTax would significantly reduce marginal taxes on work and saving, lowering overall average remaining lifetime tax burdens on current and future workers. A study by Kotlikoff and Sabine Jokisch concluded that the long term effects of the FairTax would reward low-income households with 26.3% more purchasing power, middle-income households with 12.4% more purchasing power, and high-income households with 5% more purchasing power. The Beacon Hill Institute reported that the FairTax would make the federal tax system more progressive and would benefit the average individual in almost all expenditures deciles. In another study, they state the FairTax would offer the broadest tax base (an increase of over $2 trillion), which allows the FairTax to have a lower tax rate than current tax law.
Gale analyzed a national sales tax (though different from the FairTax in several aspects) and reported that the overall tax burden on middle-income Americans would increase while the tax burden on the top 1% would drop. A study by the Beacon Hill Institute reported that the FairTax may have a negative effect on the well-being of mid-income earners for several years after implementation.According to the President’s Advisory Panel for Federal Tax Reform report, which compared the individual and corporate income tax (excluding other taxes the FairTax replaces) to a sales tax with rebate, the percentage of federal taxes paid by those earning from $15,000–$50,000 would rise from 3.6% to 6.7%, while the burden on those earning more than $200,000 would fall from 53.5% to 45.9%. The report states that the top 5% of earners would see their burden decrease from 58.6% to 37.4%. FairTax supporters argue that replacing the regressive payroll tax (a 15.3% total tax not included in the Tax Panel study; payroll taxes include a 12.4% Social Security tax on wages up to $97,500 and a 2.9% Medicare tax, a 15.3% total tax that is often split between employee and employer) greatly changes the tax distribution, and that the FairTax would relieve the tax burden on middle-class workers.
The predicted effects of the FairTax are a source of disagreement among economists and other analysts. According to Money magazine, while many economists and tax experts support the idea of a consumption tax, many of them view the FairTax proposal as having serious problems with evasion and revenue neutrality. Some economists argue that a consumption tax (the FairTax is one such tax) would have a positive effect on economic growth, incentives for international business to locate in the U.S., and increased U.S. international competitiveness (border tax adjustment in global trade). The FairTax would be tax-free on mortgage interest (up to a basic interest rate) and donations, but some law makers have concerns about losing tax incentives on home ownership and charitable contributions. There is also concern about the effect on the income tax industry and the difficulty of repealing the Sixteenth Amendment (to prevent Congress from re-introducing an income tax).
Americans For Fair Taxation states the FairTax would boost the United States economy and offers a letter signed by eighty economists, including Nobel Laureate Vernon L. Smith, that have endorsed the plan. The Beacon Hill Institute estimated that within five years real GDP would increase 10.7% over the current system, domestic investment by 86.3%, capital stock by 9.3%, employment by 9.9%, real wages by 10.2%, and consumption by 1.8%. Arduin, Laffer & Moore Econometrics projected the economy as measured by GDP would be 2.4% higher in the first year and 11.3% higher by the 10th year than it would otherwise be. Economists Laurence Kotlikoff and Sabine Jokisch reported the incentive to work and save would increase; by 2030, the economy’s capital stock would increase by 43.7% over the current system, output by 9.4%, and real wages by 11.5%. Economist John Golob estimates a consumption tax, like the FairTax, would bring long-term interest rates down by 25–35%. An analysis in 2008 by the Baker Institute For Public Policy indicated that the plan would generate significant overall macroeconomic improvement in both the short and long-term, but warned of transitional issues.
FairTax proponents argue that the proposal would provide tax burden visibility and reduce compliance and efficiency costs by 90%, returning a large share of money to the productive economy. The Beacon Hill Institute concluded that the FairTax would save $346.51 billion in administrative costs and would be a much more efficient taxation system. Bill Archer, former head of the House Ways and Means Committee, asked Princeton University Econometrics to survey 500 European and Asian companies regarding the effect on their business decisions if the United States enacted the FairTax. 400 of those companies stated they would build their next plant in the United States, and 100 companies said they would move their corporate headquarters to the United States. Supporters argue that the U.S. has the highest combined statutory corporate income tax rate among OECD countries along with being the only country with no border adjustment element in its tax system. Proponents state that because the FairTax eliminates corporate income taxes and is automatically border adjustable, the competitive tax advantage of foreign producers would be eliminated, immediately boosting U.S. competitiveness overseas and at home.
Opponents point to a study commissioned by the National Retail Federation in 2000 that found a national sales tax bill filed by Billy Tauzin, the Individual Tax Freedom Act (H.R. 2717), would bring a three-year decline in the economy, a four-year decline in employment and an eight-year decline in consumer spending. Wall Street Journal columnist James Taranto states the FairTax is unsuited to take advantage of supply-side effects and would create a powerful disincentive to spend money. John Linder states an estimated $11 trillion is held in foreign accounts (largely for tax purposes), which he states would be repatriated back to U.S. banks if the FairTax were enacted, becoming available to U.S. capital markets, bringing down interest rates, and otherwise promoting economic growth in the United States. Attorney Allen Buckley states that a tremendous amount of wealth was already repatriated under law changes in 2004 and 2005. Buckley also argues that if the tax rate was significantly higher, the FairTax would discourage the consumption of new goods and hurt economic growth.
During the transition, many or most of the employees of the IRS (105,978 in 2005) would face loss of employment. The Beacon Hill Institute estimate is that the federal government would be able to cut $8 billion from the IRS budget of $11.01 billion (in 2007), reducing the size of federal tax administration by 73%. In addition, income tax preparers (many seasonal), tax lawyers, tax compliance staff in medium-to-large businesses, and software companies which sell tax preparation software could face significant drops, changes, or loss of employment. The bill would maintain the IRS for three years after implementation before completely decommissioning the agency, providing employees time to find other employment.
In the period before the FairTax is implemented, there could be a strong incentive for individuals to buy goods without the sales tax using credit. After the FairTax is in effect, the credit could be paid off using untaxed payroll. If credit incentives do not change, opponents of the FairTax worry it could exacerbate an existing consumer debt problem. Proponents of the FairTax state that this effect could also allow individuals to pay off their existing (pre-FairTax) debt more quickly, and studies suggest lower interest rates after FairTax passage.
Individuals under the current system who accumulated savings from ordinary income (by choosing not to spend their money when the income was earned) paid taxes on that income before it was placed in savings (such as a Roth IRA or CD). When individuals spend above the poverty level with money saved under the current system, that spending would be subject to the FairTax. People living through the transition may find both their earnings and their spending taxed. Critics have stated that the FairTax would result in unfair double taxation for savers and suggest it does not address the transition effect on some taxpayers who have accumulated significant savings from after-tax dollars, especially retirees who have finished their careers and switched to spending down their life savings. Supporters of the plan argue that the current system is no different, since compliance costs and “hidden taxes” embedded in the prices of goods and services cause savings to be “taxed” a second time already when spent. The rebate would supplement accrued savings, covering taxes up to the poverty level. The income taxes on capital gains, estates, social security and pension benefits would be eliminated under FairTax. In addition, the FairTax legislation adjusts Social Security benefits for changes in the price level, so a percentage increase in prices would result in an equal percentage increase to Social Security income. Supporters suggest these changes would offset paying the FairTax under transition conditions.
The FairTax would be tax free on mortgage interest up to the federal borrowing rate for like-term instruments as determined by the Treasury, but since savings, education, and other investments would be tax free under the plan, the FairTax could decrease the incentive to spend more on homes. An analysis in 2008 by the Baker Institute For Public Policy concluded that the FairTax would have significant transitional issues for the housing sector since the investment would no longer be tax-favored. In a 2007 study, the Beacon Hill Institute concluded that total charitable giving would increase under the FairTax, although increases in giving would not be distributed proportionately amongst the various types of charitable organizations. The FairTax may also affect state and local government debt as the federal income tax system provides tax advantages to municipal bonds. Proponents believe environmental benefits would result from the FairTax through environmental economics and the re-use and re-sale of used goods. Former Senator Mike Gravel states the significant reduction of paperwork for IRS compliance and tax forms is estimated to save about 300,000 trees each year. Advocates argue the FairTax would provide an incentive for illegal immigrants to legalize as they would otherwise not receive the rebate. Proponents also believe that the FairTax would have positive effects on civil liberties that are sometimes charged against the income tax system, such as social inequality, economic inequality, financial privacy, self-incrimination,unreasonable search and seizure, burden of proof, and due process.
If the FairTax bill were passed, permanent elimination of income taxation would not be guaranteed; the FairTax bill would repeal much of the existing tax code, but the Sixteenth Amendment would remain in place. Preventing new legislation from reintroducing income taxation would require a repeal of the Sixteenth Amendment to the United States Constitution with a separate provision expressly prohibiting a federal income tax. This is referred to as an “aggressive repeal”. Separate income taxes enforced by individual states would be unaffected by the federal repeal. Passing the FairTax would require only a simple majority in each house of the United States Congress along with the signature of the President, whereas enactment of a constitutional amendment must be approved by two thirds of each house of the Congress, and three-quarters of the individual U.S. states. It is therefore possible that passage of the FairTax bill would simply add another taxation system. If a new income tax bill were passed after the FairTax passage, a hybrid system could develop; albeit, there is nothing preventing a bill for a hybrid system today. To address this issue and preclude that possibility, in the 111th Congress John Linder introduced a contingent sunset provision in H.R. 25. It would require the repeal of the Sixteenth Amendment within 8 years after the implementation of the FairTax or, failing that, the FairTax would expire. Critics have also argued that a tax on state government consumption could be unconstitutional.
Since the FairTax would not tax used goods, the value would be determined by the supply and demand in relation to new goods. The price differential/margins between used and new goods would stay consistent, as the cost and value of used goods are in direct relationship to the cost and value of the new goods. Because the U.S. tax system has a hidden effect on prices, it is expected that moving to the FairTax would decrease production costs from the removal of business taxes and compliance costs, which is predicted to offset a portion of the FairTax effect on prices.
Since the FairTax would not tax used goods, some critics have argued that this would create a differential between the price of new and used goods, which may take years to equalize. Such a differential would certainly influence the sale of new goods like vehicles and homes. Similarly, some supporters have claimed that this would create an incentive to buy used goods, creating environmental benefits of re-use and re-sale. Conversely, it is argued that like the income tax system that contains embedded tax cost (seeTheories of retail pricing), used goods would contain the embedded FairTax cost. While the FairTax would not be applied to the retail sales of used goods, the inherent value of a used good includes the taxes paid when the good was sold at retail. The value is determined by the supply and demand in relation to new goods. The price differential / margins between used and new goods should stay consistent, as the cost and value of used goods are in direct relationship to the cost and value of the new goods.
Based on a study conducted by Dale Jorgenson, proponents state that production cost of domestic goods and services could decrease by approximately 22% on average after embedded tax costs are removed, leaving the sale nearly the same after taxes. The study concludes that producer prices would drop between 15% and 26% (depending on the type of good/service). Jorgenson’s research included all income and payroll taxes in the embedded tax estimation, which assumes employee take-home pay (net income) remains unchanged from pre-FairTax levels. Price and wage changes after the FairTax would largely depend on the response of the Federal Reserve monetary authorities. Non-accommodation of the money supply would suggest retail prices and take home pay stay the same—embedded taxes are replaced by the FairTax. Full accommodation would suggest prices and incomes rise by the exclusive rate (i.e. 30%)—embedded taxes become windfall gains. Partial accommodation would suggest a varying degree in-between.
If businesses provided employees with gross pay (including income tax withholding and the employee share of payroll taxes), Arduin, Laffer & Moore Econometrics estimated production costs could decrease by a minimum of 11.55% (partial accommodation). This reduction would be from the removal of the remaining embedded costs, including corporate taxes, compliance costs, and the employer share of payroll taxes. This decrease would offset a portion of the FairTax amount reflected in retail prices, which proponents suggest as the most likely scenario. Bruce Bartlett states that it is unlikely that nominal wages would be reduced, which he believes would result in a recession, but that the Federal Reserve would likely increase the money supply to accommodate price increases. David Tuerck states “The monetary authorities would have to consider how the degree of accommodation, varying from none to full, would affect the overall economy and how it would affect the well-being of various groups such as retirees.”
Social Security benefits would be adjusted for any price changes due to FairTax implementation. The Beacon Hill Institute states that it would not matter, apart from transition issues, whether prices fall or rise—the relative tax burden and tax rate remains the same. Decreases in production cost would not fully apply to imported products; so according to proponents, it would provide tax advantages for domestic production and increase U.S. competitiveness in global trade (see Border adjustability). To ease the transition, U.S. retailers will receive a tax credit equal to the FairTax on their inventory to allow for quick cost reduction. Retailers would also receive an administrative fee equal to the greater of $200 or 0.25% of the remitted tax as compensation for compliance costs, which amounts to around $5 billion.
One avenue for non-compliance is the black market. FairTax supporters state that the black market is largely untaxed under the current tax system. Economists estimate the underground economy in the United States to be between one and three trillion dollars annually. By imposing a sales tax, supporters argue that black market activity would be taxed when proceeds from such activity are spent on legal consumption. For example, the sale of illegal narcotics would remain untaxed (instead of being guilty of income tax evasion, drug dealers would be guilty of failing to submit sales tax), but they would face taxation when they used drug proceeds to buy consumer goods such as food, clothing, and cars. By taxing this previously untaxed money, FairTax supporters argue that non-filers would be paying part of their share of what would otherwise be uncollected income and payroll taxes.
Other economists and analysts have argued that the underground economy would continue to bear the same tax burden as before. They state that replacing the current tax system with a consumption tax would not change the tax revenue generated from the underground economy—while illicit income is not taxed directly, spending of income from illicit activity results in business income and wages that are taxed.
Proponents state the FairTax would reduce the number of tax filers by about 86% (from 100 million to 14 million) and reduce the filing complexity to a simplified state sales tax form. The Government Accountability Office(GAO), among others, have specifically identified the negative relationship between compliance costs and the number of focal points for collection. Under the FairTax, the federal government would be able to concentrate tax enforcement efforts on a single tax. Retailers would receive an administrative fee equal to the greater of $200 or 0.25% of the remitted tax as compensation for compliance costs. In addition, supporters state that the overwhelming majority of purchases occur in major retail outlets, which are very unlikely to evade the FairTax and risk losing their business licenses. Economic Census figures for 2002 show that 48.5% of merchandise sales are made by just 688 businesses (“Big-Box” retailers). 85.7% of all retail sales are made by 92,334 businesses, which is 3.6% of American companies. In the service sector, approximately 80% of sales are made by 1.2% of U.S. businesses.
The FairTax is a national tax, but can be administered by the states rather than a federal agency, which may have a bearing on compliance as the states’ own agencies could monitor and audit businesses within that state. The 0.25% retained by the states amounts to $5 billion the states would have available for enforcement and administration. For example, California should receive over $500 million for enforcement and administration, which is more than the $327 million budget for the state’s sales and excise taxes. Because the federal money paid to the states would be a percentage of the total revenue collected, John Linder claims the states would have an incentive to maximize collections. Proponents believe that states that choose to conform to the federal tax base would have advantages in enforcement, information sharing, and clear interstate revenue allocation rules. A study by the Beacon Hill Institute concluded that, on average, states could more than halve their sales tax rates and that state economies would benefit greatly from adopting a state-level FairTax.
FairTax opponents state that compliance decreases when taxes are not automatically withheld from citizens, and that massive tax evasion could result by collecting at just one point in the economic system. Compliance rates can also fall when taxed entities, rather than a third party, self-report their tax liability. For example, ordinary personal income taxes can be automatically withheld and are reported to the government by a third party. Taxes without withholding and with self-reporting, such as the FairTax, can see higher evasion rates. Economist Jane Gravelle of the Congressional Research Service found studies showing that evasion rates of sales taxes are often above 10%, even when the sales tax rate is in the single digits. Tax publications by the Organisation for Economic Co-operation and Development (OECD), IMF, and Brookings Institution have suggested that the upper limit for a sales tax is about 10% before incentives for evasion become too great to control. According to the GAO, 80% of state tax officials opposed a national sales tax as an intrusion on their tax base.Opponents also raise concerns of legal tax avoidance by spending and consuming outside of the U.S. (imported goods would be subject to collection by the U.S. Customs and Border Protection).
Economists from the University of Tennessee concluded that while there would be many desirable macroeconomic effects, adoption of a national retail sales tax would also have serious effects on state and local government finances. Economist Bruce Bartlett stated that if the states did not conform to the FairTax, they would have massive confusion and complication as to what is taxed by the state and what is taxed by the federal government. In addition, sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles—Bartlett suggests that the state may not have sufficient incentive to enforce the tax. University of Michigan economist Joel Slemrod argues that states would face significant issues in enforcing the tax. “Even at an average rate of around five percent, state sales taxes are difficult to administer.” University of Virginia School of Law professor George Yin states that the FairTax could have evasion issues with export and import transactions. The President’s Advisory Panel for Federal Tax Reform reported that if the federal government were to cease taxing income, states might choose to shift their revenue-raising to income. Absent the Internal Revenue Service, it would be more difficult for the states to maintain viable income tax systems.
Opponents of the FairTax argue that imposing a national retail sales tax would drive transactions underground and create a vast underground economy. Under a retail sales tax system, the purchase of intermediate goods and services that are factors of productionare not taxed, since those goods would produce a final retail good that would be taxed. Individuals and businesses may be able to manipulate the tax system by claiming that purchases are for intermediate goods, when in fact they are final purchases that should be taxed. Proponents point out that a business is required to have a registered seller’s certificate on file, and must keep complete records of all transactions for six years. Businesses must also record all taxable goods bought for seven years. They are required to report these sales every month (see Personal vs. business purchases). The government could also stipulate that all retail sellers provide buyers with a written receipt, regardless of transaction type (cash, credit, etc.), which would create a paper trail for evasion with risk of having the buyer turn them in (the FairTax authorizes a reward for reporting tax cheats).
While many economists and tax experts support a consumption tax, problems could arise with using a retail sales tax rather than a value added tax (VAT). A VAT imposes a tax at every intermediate step of production, so the goods reach the final consumer with much of the tax already in the price. The retail seller has little incentive to conceal retail sales, since he has already paid much of the good’s tax. Retailers are unlikely to subsidize the consumer’s tax evasion by concealing sales. In contrast, a retailer has paid no tax on goods under a sales tax system. This provides an incentive for retailers to conceal sales and engage in “tax arbitrage” by sharing some of the illicit tax savings with the final consumer. Laurence Kotlikoff has stated that the government could compel firms to report, via 1099-type forms, their sales to other firms, which would provide the same records that arise under a VAT. In the United States, a general sales tax is imposed in 45 states plus the District of Columbia (accounting for over 97% of both population and economic output), which proponents argue provides a large infrastructure for taxing sales that many countries do not have.
Businesses would be required to submit monthly or quarterly reports (depending on sales volume) of taxable sales and sales tax collected on their monthly sales tax return. During audits, the business would have to produce invoices for the “business purchases” that they did not pay sales tax on, and would have to be able to show that they were genuine business expenses. Advocates state the significant 86% reduction in collection points would greatly increase the likelihood of business audits, making tax evasion behavior much more risky. Additionally, the FairTax legislation has several fines and penalties for non-compliance, and authorizes a mechanism for reporting tax cheats to obtain a reward. To prevent businesses from purchasing everything for their employees, in a family business for example, goods and services bought by the business for the employees that are not strictly for business use would be taxable. Health insurance or medical expenses would be an example where the business would have to pay the FairTax on these purchases. Taxable property and services purchased by a qualified non-profit or religious organization “for business purposes” would not be taxable.
The creation of the FairTax began with a group of businessmen from Houston, Texas, who initially financed what has become the political advocacy group Americans For Fair Taxation (AFFT), which has grown into a large tax reform movement. This organization, founded in 1994, claims to have spent over $20 million in research, marketing, lobbying, and organizing efforts over a ten-year period and is seeking to raise over $100 million more to promote the plan. AFFT includes a staff in Houston and a large group of volunteers who are working to get the FairTax enacted. Bruce Bartlett has charged that the FairTax was devised by the Church of Scientology in the early 1990s. Representative John Linder told the Atlanta Journal-Constitution that Bartlett confused the FairTax movement with the Scientology-affiliated Citizens for an Alternative Tax System, which also seeks to abolish the federal income tax and replace it with a national retail sales tax. Leo Linbeck, AFFT Chairman and CEO, stated “As a founder of Americans For Fair Taxation, I can state categorically, however, that Scientology played no role in the founding, research or crafting of the legislation giving expression to the FairTax.”
Much support has been achieved by talk radio personality Neal Boortz. Boortz’s book (co-authored by Georgia Congressman John Linder) entitled The FairTax Book, explains the proposal and spent time atop the New York Times Best Seller list. Boortz stated that he donates his share of the proceeds to charity to promote the book. In addition, Boortz and Linder have organized several FairTax rallies to publicize support for the plan. Other media personalities have also assisted in growing grassroots support including former radio and TV talk show host Larry Elder, radio host and former candidate for the 2012 GOP Presidential Nomination Herman Cain, Fox News and radio host Sean Hannity, and Fox Business Host John Stossel. The FairTax received additional visibility as one of the issues in the 2008 presidential election. At a debate on June 30, 2007, several Republican candidateswere asked about their position on the FairTax and many responded that they would sign the bill into law if elected. The most vocal promoters of the FairTax during the 2008 primary elections were Republican candidate Mike Huckabee and Democratic candidate Mike Gravel. Since 2008, the tax has been popular at Tea Party protests. The Internet, blogosphere, and electronic mailing lists have contributed to promoting, organizing, and gaining support for the FairTax. In the 2012 Republican presidential primary, and his ensuing Libertarian Party presidential run, former Governor of New Mexico and businessman Gary Johnson actively campaigned for the FairTax. Former CEO of Godfather’s Pizza Herman Cain has been promoting the FairTax as a final step in a multiple-phase tax reform. Outside of the United States, the Christian Heritage Party of Canada adopted a FairTax proposal as part of their 2011 election platform but won no seats in that election.
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