I have a question for my friends who support a national sales tax. First, some background. Beginning with the defeat of Woody Jenkins in his Louisiana Senate race back in the 1990s, various versions of the national sales tax have caused political headaches for GOP candidates. Even candidates from conservative states, such as Sen. DeMint in South Carolina, have been put on the defensive because they said good things about the FairTax. The latest example comes from the Pennsylvania special election for Rep. Murtha’s seat. As this Wall Street Journal column points out, the winning Democratic candidate hammered the Republican because of his support for the FairTax. So even though I have said very nice things about a national sales tax, testified about the virtues of the national sales tax, and debated in favor of a national sales tax over the current system, I am increasingly convinced that the flat tax is the only plan that is sufficiently immune to demagoguery. Can anyone give me a persuasive argument about the political viability of the FairTax?
Democrats turned the table and ran against Mr. Burns on taxes. The GOP businessman had flirted in the past with supporting the FAIR tax, a version of a national sales tax that supporters want to replace the income tax. Mr. Critz’s ads blasted Mr. Burns for supporting a 23% sales tax increase without mentioning the income tax elimination, and the GOP seems to have been caught flat-footed. Republicans can rightly complain that this is unfair and that Mr. Critz will vote to raise taxes when Mrs. Pelosi gives the order. But they need a real-time campaign answer to the tax-hike charge. Whatever the merits of the FAIR tax in theory, we’ve long thought it is a political loser because voters figure they’ll get the sales tax without losing the income tax. At a minimum, FAIR tax supporters shouldn’t have left Mr. Burns defenseless on the subject. By the way, this is also a political warning to Republicans inclined to fall for the Democratic trap of agreeing to a new value-added tax in return for lower income-tax rates.
The question is misplaced. You do not replace federal income taxes with a federal sales tax. You replace federal income taxes with nothing.
Actually, in sales tax terms all 300 million Americans understand, the Fairtax would add 30% to the cost of new goods and all services. And, assuming everyone takes home 100% of their pay/pensions, retail prices will rise by 18%. But for many families, the increased take home pay would offset the higher retail prices. Except for seniors that currently pay no income tax and no longer make any payroll contributions.
Try explaining that to the average citizen?
If the confusion over the amount and impact of the sales tax was the only problem with the Fairtax, it would be a winner.
But, there are constitutional issues with the federal government taxing State and Local government consumption, and there are two transition issues with no ready solution. First, all after tax savings would be double taxed when spent making Roth IRA’s a really bad deal. And, after paying into the Social Security Trust Funds for over 45 years, seniors would be forced to resume paying for their benefits with their sales tax dollars. Neither is fair and neither has any solution.
In addition, the “prebate” would be the largest cash grant entitlement ever, coming at a time when entitlements are squeezing out discretionary spending in the federal budget. All 50 State Governors are opposed to any kind of federal sales tax. And changing over to a new and untested method of funding the federal government overnight or “cold turkey” runs the risk of a total economic collapse.
Misrepresenting the Fairtax rate is the least of the problems with the Fairtax scheme. You want to get rid of the IRS and go to a consumption tax? Get ready for a VAT which is used in over 130 countries worldwide. Combining a VAT with elimination of the income tax for all but the very wealthy might be a good way to proceed.
Stay tuned!
[...] dishonest, and their TV ads are grossly misleading, but they are using this approach because the anti-FAIR tax message is politically effective. Many pro-tax reform candidates have lost elections in favorable states and districts, largely [...]
[...] dishonest, and their TV ads are grossly misleading, but they are using this approach because the anti-FAIR tax message is politically effective. Many pro-tax reform candidates have lost elections in favorable states and districts, largely [...]
Probably the way to present the Fair Tax needs to change:
If governments need X amount of money (e.g. 23% of GDP) each year to operate, why do not collect this X amount with ONE tax instead of 150 taxes?
Let’s Clean house. Replace 150 taxes with one, collecting the same amount from people. (Ultimately people pay taxes, not Corporations, which include their tax burden in the cost of products)
Make tax collection efficient. Avoid 200,000 pages of tax laws. Reduce government bureaucracy and collection costs to a fraction of the current cost. Avoid accounting and legal fees.
Public sector costs will diminish. More manpower will become available for wealth production. Private sector production will increase. The economy will improve. Government revenue will go up because of more economic activity, not because of higher tax rates.
Actually there are ready solutions to both the pre-taxed taxed retirement plans public (like SS) or private.
You prebate them an amount to compensate, just like you prebate people at poverty level.
Since the funds will be taxed anyway that is a revenue neutral solution over time. That’s the general solution to pre-taxed funds.