In keeping with my intention (perhaps misguided, and often derailed) to educate; in furtherance of my goal of giving everyone in the world the opportunity to think critically in order to be in charge of their own lives so that we can move past the incessant picayune pinpricks that epitomize our current level of squabbling, and actually GET SOMETHING DONE—take a deep breath—I now give you the Fair Tax (thanks for the idea, Mom!).
The Fair Tax plan replaces income tax with a sales, or consumption, tax. The revenue to the government would remain the same. It just would now be collected entirely by businesses, instead of having people send in a portion of their income with their tax returns.
The aim of the Fair Tax is to reduce the burden of sending money to the government. It is not a means to reduce the size of government (except for maybe the IRS).
The Fair Tax is also self-limiting, that is, if you don’t want to pay it, you decide to not buy more stuff. You can’t pay taxes on things you didn’t buy. Consumption taxes encourage savings. More savings means more dollars to invest. More investment tends to increase the size of the economy. The pie grows, and everyone’s slice gets bigger.
Seems like a simple idea, right? Dump the income tax, and collect that revenue from sales tax. No more deductions, nor more tax returns, no more loopholes. The more you buy, the more you pay. About as progressive a tax as you can think of.
Except that poor people have to buy stuff, too. So you take care of that with a prebate. Figure out approximately how much the necessities of life cost in a year, calculate the tax on that amount, credit EBT cards for everyone in the country, and away we go. If everyone gets the same credit, we bypass a needs test, and all of its accompanying paperwork and enforcement problems.
So, if a sales tax is so easy, and it isn’t regressive, what’s the problem? Why hasn’t this simple solution been implemented already?
But it is regressive, say critics. The Fair Tax must generate as much revenue as the feds are now collecting from individual and corporate income taxes, plus social security and estate taxes, and many other taxes that are collected on a daily, weekly, monthly, or yearly basis in this country. This means that the sales tax rate must be increased an astronomical amount (or 30%, according to the boys at FactCheck.org). This increase is on top of the amount of state and local sales tax already charged for goods.
With such a high rate of tax, say the critics, the odds of non-compliance go up as well. People don’t mind paying some amount to the feds, but when that amount gets too big, they resist, and black markets spring up. The amount of revenue that the feds get drops, the government has to find another way to bring in more money, and we’re talking about reforming the tax code all over again.
Also, since it is the lower income people who spend more of their money on goods and services, the Fair Tax places more of a burden on them. The lowest income folks get an assist from that prebate, but the workers a little higher up on the ladder are the ones who take the hit.
What ends up happening, again according to those hard-working folks at FactCheck, is that: the effective tax rate would drop for those people making less than $15,000 per year; the effective tax rate would increase for workers earning $15,000 – $200,000 per year; and the rate would decrease for those earning more than $200,000 per year.
So now where’s the benefit? It looks like we’re back to regression. Well, for one thing, it didn’t seem to me that the FactCheck figures took into account the cost of complying with the income tax code. Remember those 1200 pages of tax returns for the Romneys for the past two years? And recall the last time you filled out your tax returns? Under the Fair Tax, there’d be no tax returns. The Fair Tax would be collected by businesses, the same people who are collecting sales taxes now.
And FactCheck does say that, even if the Fair Tax is somewhat regressive, with the actual burden on the economy lessened, the economy should grow, making life better for everyone. But we’ll probably never know. The biggest factor working against the Fair Tax is the social engineering one. That is, the feds like to help out their pet projects, and disincentivize those activities that they don’t much care for. There are plenty of opportunities to do just that with a 75,000 page tax code. It’s more difficult with a sales tax.
But not impossible, thank goodness. The feds can tinker with the Fair Tax all they want: they can make certain goods and services taxable or not taxed, depending on the outcome they want. They can even redefine what goods and services are, to bring more items into the taxing area.
Fair Tax, Flat Tax, Nine-Nine-Nine, no matter how the money gets to Washington, until we decide that too much of it is in the hands of the federal government, it isn’t the form of the tax code that will save us. The Fair Tax is a method of making the payment of taxes less of a burden. It doesn’t make the federal government itself less of a burden on us.
The Fair Tax is one example of the citizens of this country trying to come up with big ideas to get this country back on track, and ease the burdens on taxpayers, while at the same time providing for the general welfare. Let’s distill these ideas to their core, discuss their merits and drawbacks in a rational manner, create a workable compromise, implement that compromise, and move on to the really big issues.