"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.