Tuesday, July 17, 2007

"Fair Tax" is a Gimmick, Not a Solution



Since before the 4th of July I have been telling readers that I would do an article de-constructing the so-called "fair tax". The issue is a more poignant one than ever for Arkansans, as former Arkansas Governor Mike Huckabee has vowed to make the "fair tax" the "centerpiece" of his campaign for President. Since the name does nothing to describe what is actually being proposed (you have to watch those kind), let me spell out that the "fair tax" is a national sales tax that would replace all income and payroll taxes. There would be a rebate amount so that the tax would still be regressive.

I understand that people are frustrated about the tax code, and the IRS. Congress has deliberately made it complex because their power is enhanced by a code that is riddled with special provisions for groups that lobby them the hardest. But I want this truth to sink into your heart and mind: the real problem with our taxes is not the method of collection, but the amount that is spent. It is simply enormous beyond the capacity of the human mind to fully understand. Government is now so huge and consumes so much of the earnings of the middle class that it is a significant threat to our liberty and prosperity, as well as an impediment to the upward mobility of the working class and poor. And it is growing exponentially as politicians, loosed from all restraints of constitutional propriety, promise to dump rail-road cars full of taxpayer money on every "need" they can imagine.

Big-spending politicians (and I regret that our former Governor is among them) are misdirecting your attention and energy when they incite you over a program to change the method of tax collection. While they distract you with one hand pointing to the proposed change in collection methods, the other hand continues to reach for your wallet. The first problem in taxation is the amount taken, not the method of collection. Now that they can deficit spend and buy your votes with your grand children's money the problem is even worse.

But the problems with the "fair tax" run well beyond one of misdirection. Consider the claim that it would "do away with the IRS". Well, maybe an IRS that audited for INCOME, but it would soon spawn and even more oppressive IRS that audited for spending. At current spending levels, the sales tax would have to be 26 cents on the dollar. Make that 35 cents on the dollar once you add in state and local sales taxes. That is going to encourage cheating and black markets. Legitimate businesses would be at a disadvantage relative to folks who sell in the alley or parking lot. A lot of those businesses might agree to do a little "after hours sale".

They would still be cheating on taxes, just using unreported sales rather than unreported income. If the neighbor boy cuts your yard, the government is going to want to know about the transaction. People will adjust their behavior to abuse the system, and the government will respond with investigators and amplifying regulations. We are then back to square one. Check that, we are further back. When the government was taxing income then once you had it, it was not their business where it was spent. With a "fair tax" it will be. The "fair tax" will lead to a police state that makes the IRS look like quilt judges at the county fair.

A tax on income that is flatter, and simpler would be a real "fair tax". In the Bible, Israel basically had a flat tax (flat percentage of income). If you really want to get rid of the IRS, then change the code so that the national government sent each state it's share of the bill, based on population with some allowance for varying income, and let each state decide on its own how to collect its share. Somebody will come up with the best solution, and other states can copy it. More importantly, it takes the power away from the central government and brings it closer to home.

8 Comments:

Anonymous Anonymous said...

Hmmmm... you left so much unsaid on this subject. Slipping?

Here is a cool linkage that I agree with. Bet you will too:

http://www.mises.org/story/1814

8:58 PM, July 17, 2007  
Blogger Mark Moore (Moderator) said...

I do agree with it. Whether I am slipping or whether they are just better at it than me (or vice-versa) I will leave to the readers.

4:30 AM, July 18, 2007  
Anonymous Anonymous said...

I'm uncomfortable with the implication that the income tax is the Biblical tax and that therefore it should be considered the ideal model.

The tithe was instituted under a theocracy, which obviously we don't have. This alone is a huge difference.

Compliance was via the consciences of the people, not by an armed thuggery and tax courts. The tithe's continued existence into the Church Age is debatable, but what isn't is that not even the churches who believe in it carry out enforcement by an armed thuggery.

In keeping with your analogy, are you suggesting that Americans be allowed to pay their income tax according to their consciences? If not, I think you need to revisit your argument.

I don't think an income tax is wrong, I just don't think you can make a Biblical case for it being the ideal form of taxation for mortal men.

7:47 AM, July 18, 2007  
Anonymous Anonymous said...

The Fair Tax crowd are well-intentioned people who are unwittingly advocating the empowerment of the federal government by vastly increasing of its taxing options.

Please, please, please, FT supporters, read the bill, and stop preaching the so-called Fair Tax!

8:20 AM, July 18, 2007  
Blogger Mark Moore (Moderator) said...

Any analogy can be stretched too far I suppose. I don't think that is the "only tax you can have because the Bible says so". The Bible says to pay whatever tax your government lays on you. Still, in the Bible the "tax" was on income, not spending.

I understand the armed thugs did not come along until 300 years later, and God warned them what would happen if they wanted rulers other than Him- 1st Samuel Ch 8.

And whether it is the ideal model or not, the armed thugs are coming after you whether it is income tax or sales tax.

5:57 PM, July 18, 2007  
Anonymous Anonymous said...

There's probably always going to be armed thug tax collectors. I just wished the armed thugs were not from the federal government.

I wish that or predecessors would not have allowed the federal government to tax individuals "directly" (which of course was the case under the original Constitution). The power to tax directly is maybe the largest driver in our march towards socialism. Unprincipled politicians spending unending sources of other peoples money to solve all the world's problems.

The solution is indeed not the fair tax, it is revoking the federal government's ability to tax individuals directly.

11:09 AM, July 19, 2007  
Anonymous mark m said...

"The solution is indeed not the fair tax, it is revoking the federal government's ability to tax individuals directly"

that would be my first choice

12:39 PM, July 19, 2007  
Blogger johnwk said...

Now why would any freedom loving person support Mike Huckabee who promotes an additional federal tax to be adopted in America, the alleged fair tax, which happens to be a socialist friendly and big government friendly tax proposal and would keep alive Congress‘s power to calculate taxes from profits, gains, salaries and other “incomes”?

Perhaps those who support the alleged fair tax have not read the actual text of H.R. 25, which makes it quite clear the proposal would not remove from Congress's power its current ability to calculate taxes from profits, gains, salaries and other "incomes" and proposes to create an additional tax in America, a 23 percent federal tax calculated from property, real and personal, while keeping alive Congress‘s power to calculate taxes from profits, gains, salaries and other “incomes“.

You want real tax reform? Then tell Mike the socialist to support real tax reform.

Here’s real tax reform: Withdraw from Congress’s powers the allowance to calculate any tax or burden from profits, gains, interest, salaries, wages, tips, inheritances or any other lawfully realized money, thereby closing down the IRS, but still allowing Congress to raise a federal revenue from imposts, duties and miscellaneous excise taxes, and also allow Congress to lay and collect the apportioned tax among the States mentioned in our Constitution if Congress needs additional revenue.

This tax reform is a return to our Constitution’s original tax plan , which helped America become the economic marvel of the world when it was observed, and also made members of Congress immediately accountable for reckless spending and borrowing!

BTW, why does Comrade Mike Huckabee want to put every American family on the public dole with H.R.25’s family consumption allowance?

JWK

10:31 AM, August 18, 2007  

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