Michael: I'm going to say two words, and I want you to tell me what they have in common: Donald Duck and your paycheck. Kevin: Donald Duck and my paycheck? Okay, I'm drawing a blank. Is this a riddle? One is a beloved cartoon character, and the other is a source of mild to moderate disappointment every two weeks. Michael: Close! The answer is that one was used as a propaganda tool to make you feel better about how much the government takes from the other. Kevin: Whoa, hold on. Are you seriously telling me Donald Duck was involved in tax policy? That sounds like something out of a cartoon... which, I guess it is. Michael: It's a real and wild piece of history that comes from our book today, The FairTax Book by Neal Boortz and John Linder. It was a massive #1 New York Times bestseller back in 2005, which is incredible for a book about tax policy. Kevin: A book about taxes hitting #1? That's a feat in itself. Most people would rather read the phone book. Michael: Exactly. And it helps to know the authors: Boortz is a famous libertarian radio host and Linder was a sitting Congressman at the time. So this isn't some dry academic paper; it's a political grenade designed to blow up the entire system. And it starts with a simple, shocking idea about the system we have now. That propaganda story perfectly illustrates their first big argument: that our entire relationship with taxes is built on a brilliant deception.

Kevin: Deception? That's a strong word. What do they mean? It feels pretty straightforward: I work, the government takes a cut, I get the rest. Michael: That’s what it feels like, but the book argues that feeling is the result of one of the most successful political maneuvers of the 20th century: tax withholding. Before World War II, most Americans paid their taxes in a lump sum at the end of the year. They wrote a big, painful check directly to the government. Kevin: I can imagine the groaning. That would hurt. Michael: It hurt a lot. And because it hurt, people were very aware of how much government cost. But during the war, the government needed a massive, continuous flow of cash. So they rolled out the "Current Tax Payment Act of 1943," which introduced withholding. But they couldn't just say, "We're taking money from your paycheck before you even see it." They needed to sell it. Kevin: And this is where Donald Duck comes in? Michael: This is exactly where he comes in. The Treasury Department commissioned Walt Disney to create an animated short called "The New Spirit." It featured Donald Duck, filled with patriotic fervor, rushing to pay his taxes to support the war effort. The film's message was clear: paying taxes is your patriotic duty, a privilege even. A Gallup poll at the time found that 37 percent of people said the cartoon positively affected their willingness to pay taxes. Kevin: That's incredible. So they used a cartoon to make tax collection feel like a heroic act instead of a financial drain. Michael: Precisely. And they paired it with a brilliant marketing scheme called the "Ruml Plan," named after a Macy's executive. The plan was pitched as "tax forgiveness." They told the American public that if they agreed to start withholding in 1943, the government would "forgive" their 1942 tax bill. Kevin: Wait, forgive a whole year of taxes? What was the catch? There’s always a catch. Michael: The catch was that it was an illusion. They were essentially just shifting the payment schedule. You were paying your taxes for the previous year through the new withholding system, but it was framed as a freebie. The government got its steady stream of cash, and the public felt like they'd gotten a great deal. The authors argue this was the moment the government discovered a psychological anesthetic. Kevin: A psychological anesthetic. I like that. You don't feel the pain of the injection because you never see the full needle. The money is gone before it ever feels like it was yours. Michael: Exactly. The book tells a great little story about a young woman at a FairTax forum. She says she doesn't like the idea of a sales tax because she loves getting her $500 refund from the IRS every year. The author asks her, "How would you feel if I took $1,000 from you today and promised to give it back to you next year?" She didn't get it. She was so focused on the "refund" that she couldn't see it was just her own money being returned to her after she'd given the government an interest-free loan. Kevin: That's a powerful point. It reframes the tax refund from a gift into evidence of a flawed system. But what about corporate taxes? Everyone loves to say "tax the corporations!" The book must have a take on that. Michael: Oh, it does. The authors call corporate taxes the second great deception. Their argument is simple and, honestly, pretty hard to refute: corporations don't pay taxes. Kevin: Come on. Of course they do. We see the headlines all the time. Michael: They collect taxes. A corporation is a legal entity, a piece of paper. It can't pay anything. When the government taxes a corporation, the book argues that tax has to come from one of three places, and all of them are individuals. Either it comes from the shareholders in the form of lower dividends, from the employees in the form of lower wages, or from you, the customer, in the form of higher prices. Kevin: So when a politician says they're raising corporate taxes, what they're really saying is they're raising taxes on workers, customers, or investors, but they're just laundering it through the company so it doesn't sound as bad. Michael: That's the core argument. It's a way to hide the tax burden from the people who actually bear it. The corporation is just a middleman, a collection agent for the government.

Kevin: Okay, so they've painted a pretty bleak picture of the current system. It's a mess of hidden costs and psychological tricks. What's their grand solution? This 'FairTax' thing. Michael: The solution is as radical as the critique. The FairTax plan proposes to repeal every single federal tax on individuals and businesses. No more income tax, no more payroll taxes for Social Security and Medicare, no corporate tax, no capital gains tax, no gift tax, no estate tax. All of it, gone. Kevin: Gone? And the IRS with it? Michael: The IRS as we know it, gone. And they propose to replace all of that lost revenue with a single, national retail sales tax of 23% on all new goods and services. Kevin: A 23% sales tax! That sounds massive. A hundred-dollar pair of shoes would suddenly cost $123. That would crush people, especially the poor. Michael: This is the biggest point of confusion, and the book spends a lot of time on it. First, they argue that prices wouldn't just stay the same with a 23% tax slapped on top. They introduce this idea of "embedded taxes." Kevin: Hold on, "embedded taxes"? That sounds like something a marketing team came up with. What does that actually mean in plain English? Michael: It's the sum of all the taxes paid along the supply chain that are baked into the final price of a product. Let's take their famous example: a simple loaf of bread. The farmer who grew the wheat paid corporate income tax, payroll taxes for his workers, and fuel taxes for his tractor. The trucking company that shipped the wheat paid taxes. The miller who ground the flour paid taxes. The bakery that baked the bread paid taxes. The company that made the plastic bag paid taxes. Kevin: So the price tag on that loaf of bread isn't just the cost of ingredients and labor. It's also a collection of all those hidden taxes passed down the line. Michael: Exactly. The book cites a Harvard study by economist Dale Jorgenson, which concluded that, on average, 22 percent of the retail price of any given product is made up of these embedded federal taxes. So, under the FairTax, that 22% cost disappears. The pre-tax price of goods should theoretically drop. That hundred-dollar pair of shoes might now only cost $78 to produce and sell. Then, you add the 23% FairTax, and the final price is around $96. Kevin: Okay, that's a very different picture. But even so, a sales tax feels regressive. A billionaire and a janitor both pay the same tax on a gallon of milk. How is that fair? Michael: This is the most controversial part, and their solution is a system called the "prebate." Every single household in America, from Bill Gates down to a family living below the poverty line, would receive a monthly check from the government. The amount of that check is calculated to be enough to cover the FairTax on spending up to the federal poverty level. Kevin: So it's basically like the government giving you an advance on your allowance to cover the sales tax on necessities like food, rent, and medicine. Michael: That's a perfect way to put it. For a family of four, the prebate would be around $500 a month. This means they effectively pay zero tax on all their essential spending. Any spending above that level is what gets taxed. This is how the authors argue the system is actually progressive. The more you spend on yachts and luxury cars, the more tax you pay. The less you spend, the lower your effective tax rate is, and for the poorest families, it could even be negative. Kevin: That's a clever mechanism. But it also sounds like a massive new government program. And I've heard critics say the rate would have to be much higher than 23%, more like 30% or even 40%. Michael: The book tackles that head-on. The 23% vs. 30% debate is about whether the tax is "inclusive" or "exclusive." The FairTax is a 23% inclusive rate, meaning the tax is part of the final price. If an item costs $100, that includes $23 in tax. An exclusive rate, like most state sales taxes, would be 30%. You'd have a price tag of $77, and the register would add $23, for a total of $100. It's the same amount of tax, just expressed differently. Critics use the 30% number because it sounds scarier.

Kevin: This all sounds so simple on paper. If it's this revolutionary, why haven't we done it? Who would fight against getting rid of the IRS? Michael: This is where the book gets into the political realities. The authors argue there's a massive, entrenched industry in Washington D.C. that profits directly from the complexity of the current tax code. Kevin: The lobbyists. Michael: The lobbyists, the tax attorneys, the accountants on K Street. The book gives a great hypothetical about a trade association for electronics manufacturers. The members would all benefit hugely from the FairTax because their products would become cheaper and more competitive globally. But the association's staff in D.C.? Their million-dollar salaries are justified by their ability to navigate the 60,000-page tax code and win special loopholes and deductions for their members. Kevin: So if you simplify the tax code, you eliminate their reason for being. Their jobs disappear. Michael: Their entire industry is threatened. They would fight tooth and nail to protect the complicated mess because the mess is what makes them rich. It's a classic case of 'follow the money.' But the book argues there's an even bigger battle being fought, and it's on the global stage. Kevin: What do you mean? Michael: They argue the current U.S. tax system is actively chasing American businesses away. They tell a story to illustrate it: imagine two car companies, "Americar" based in the U.S., and "Francocar" based in France. Both sell cars in their home countries and in each other's. Kevin: Okay, a little on the nose with the names, but I'm with you. Michael: When Francocar sells a car in the U.S., it pays U.S. corporate taxes on that profit. But the French government doesn't tax that U.S. profit. Now, when Americar sells a car in France, it pays French taxes... and then it has to pay U.S. taxes on that same French profit. The U.S. is one of the only major countries that taxes its companies on their worldwide income. Kevin: Wait, so our own government is double-taxing our companies when they compete overseas, while foreign governments are giving their companies a pass? That's insane. It's like we're forcing our own team to run the race with ankle weights on. Michael: That's the perfect analogy. And it gets worse with the Value-Added Tax, or VAT, that most of Europe uses. When a German-made Mercedes is exported to the U.S., the German government refunds the VAT to Mercedes. So it arrives here with no German tax burden. When an American-made Cadillac is shipped to Germany, it arrives with all those "embedded taxes" we talked about still in its price, and then Germany slaps its VAT on top of that. Kevin: So our car is taxed twice, and their car is taxed zero times on the way over. It's a completely rigged game. Michael: The book argues it is. And the result is that it makes perfect financial sense for American companies to move their headquarters to Bermuda and their factories to Ireland. The FairTax, by eliminating all corporate and embedded taxes, would flip the script overnight. The U.S. would become the most attractive place on Earth to do business. The authors claim trillions of dollars currently stashed in offshore accounts would come flooding back into the American economy.

Michael: Ultimately, the book argues this isn't just about numbers and rates. It's about transparency and power. The current system, with its withholding and complex code, hides the true cost of government. It gives politicians and lobbyists immense power to reward their friends and punish their enemies through thousands of pages of rules and loopholes. Kevin: Whereas the FairTax, for all its potential flaws, puts the cost right there on the receipt. Every time you buy a coffee, you see exactly what you're paying for the government. It forces an honest, and probably painful, conversation. Michael: It makes the cost of government visible. And the authors believe that visibility is the key to accountability. When people truly feel the cost, they'll demand more efficiency and less waste. Kevin: It really makes you wonder. Do we prefer a complicated system that feels less painful, even if it costs us more in hidden ways? Or would we rather face the sticker shock of what government actually costs, every single time we buy something? Michael: It's a fascinating question, and it gets to the heart of our relationship with government. The book was a bestseller because it tapped into that deep frustration, but the plan remains controversial and has never gotten close to passing, which shows just how powerful the forces defending the status quo are. Kevin: It's a bold, provocative idea. And whether you love it or hate it, it definitely makes you look at your next paycheck, and your next tax refund, in a completely different light. Michael: We'd love to hear what you think. Does the idea of a national sales tax and abolishing the IRS excite you or terrify you? Let us know your thoughts on our community channels. It's a debate worth having. Kevin: This is Aibrary, signing off.