End Poverty by Adopting a FairTax System 

Ray Hoffman, Chairman of the Iowa Republican Party, writes about why America needs the FairTax. 

Ray Hoffman, Chairman Iowa GOPTax Day gives us cause to not only nauseate at our appalling disaster of a tax code, but also at the bloated government it funds. And we do not really care much about Bill Gates’ tax return, the amount of time and energy invested in his accounting, or his opinion of how government works for him. But, how about the poor and middle class? How does the system work for them?

The eye of Hurricane Katrina collided with one of America’s most economically depressed regions. The difficulties before, during, and after the storm are accentuated because of the staggering number of American poor living in and around New Orleans. At that time, President Bush took the prospects of rebuilding the city of New Orleans and combined them with a revival of the War on Poverty. Let’s hope that we have learned the mistakes of the last forty years.

In 1964, the War on Poverty began as an effort aimed at reducing or eliminating poverty in America. At the time, there were over 35 million Americans designated at or below the poverty line. All of the legislation and the social programs that followed failed to dent the crisis over poverty. Since 1965 there has yet to be a dent in the poverty rate and today there are over 40 million Americans deemed to be living in poverty. Not a very good track record for 40 years of government intervention and over $7 trillion spent.

Throwing money at problems without accountability is one of the inherent flaws of government that produced such a widespread disaster in the gulf region. Government-built levees were defective, government-sponsored emergency coordination failed, and an overwhelming number of victims were poor trapped in government-financed programs. Even if anyone can get an accurate accounting of FEMA’s effort, I know their effort is indefensible. Of all government services involved at any level or time, local, state, and federal, maybe only the National Weather Service can leave the scene unscathed by detractors.

President Bush and Congress have their hands full if they are serious about tackling the issue of poverty in America. Four decades of misguided programs have ashamedly punished three generations of poor in this country. Providing poor Americans with just enough money to get by each month does not cure poverty. We need to provide the one attribute that separates poor Americans from wealthy Americans: ownership. The cycles of poverty are uninterrupted because there is no accumulation of wealth to pass on to the next generation.

Included in this approach are many items that add up to a successful war on poverty. It is actually cheaper to buy Health Savings Accounts for every Medicaid eligible American than to pay for Medicaid itself. Simply providing the means to own their own health insurance and accumulate wealth that can be passed on is a major step in the right direction. The same goes for education accounts and personal retirement accounts.

The most important economic reform Congress can enact to win the fight against poverty is the FairTax. A national retail sales tax to replace the current federal tax code can provide America’s poor the climate and the means to leave poverty behind. The FairTax is fundamental tax reform that puts the consumer, including the poor, in control of when and how they pay their taxes.

Each month, every household receives a prebate from the U.S. Treasury to cover the national sales tax on essentials like food, clothing, and medical care. This prebate is figured from the current poverty level times the 23 percent national sales tax, then divided by twelve. This prebate comes to each household on top of the fact that there is no more federal taxes deducted from the paycheck.

Let’s use a Louisiana family of four on the poverty line as an example of how the FairTax will improve the economic prospects of America’s poor. The poverty level would be approximately $25,660 for this married couple with two kids. That works out to a gross monthly paycheck of $2,138. The take-home pay under the current tax code is $1,743. With the FairTax, this family will receive a paycheck of around $2,090 after taking out Louisiana income tax. Add to that a prebate check each month in the amount of $492. With the FairTax, their monthly net income is $2,582. That is a 48 percent increase in take-home pay.

Beyond the incredible boost a FairTax will give America’s economy in terms of increased trade and more jobs, it is absolutely the best way to provide a climate for especially the poorest Americans to begin accumulating wealth and breaking the cycles of poverty.

Ray Hoffmann
Chairman, Iowa Republican Party