Just finished reading The FairTax Book, by Neal Boortz and John Linder. This book touts the benefits of the United States switching from an income tax based system to a specific consumption based system, called the FairTax.

The specific FairTax proposal has been around for some time, and has a large number of supporters. Basically, the FairTax would eliminate all federal income taxes and payroll (Social Security and Medicare) taxes, and replace them with a 23% tax on all new goods and services. To combat the argument that a consumption tax hurts the poor, the FairTax also has the government sending a monthly “prebate” check to all US heads of household. This “prebate” would essentially allow consumers to buy all of life’s necessities tax free. This amount of this check would be based on the number of people in the household, and seems like it would average out to around $600.

The book does a great job of pointing out problems with the current system and the benefits of the FairTax. I don’t believe that it went far enough to explain issues and problems that critics are sure to point out. The authors repeatedly stress that we are currently paying an average 22% “embedded tax” on all goods and services that will disappear after the FairTax is enacted. I would have liked a better explanation for how the 22% was determined, and why the FairTax wouldn’t cause some level of “embedded tax”. Also, some explanation of how the authors envision the transition occurring would have been nice.

Many libertarians have fallen in love with the idea of a consumption tax. In theory anyway, it’s not hard to see why. A consumption tax would be voluntary, so if rates were too high consumers would stop buying. Everyone would pay the same rate, so the wealthy would no longer be burdened with a disproportionate amount of tax. It would be the end of “withholding”, so people would be aware of exactly how much they are paying in taxes, and the IRS would be eliminated, making April 15th just another day.

I am in agreement that a consumption tax is far superior to the system that we have now. However — and maybe I shouldn’t be so pessimistic — I am skeptical. My worst fear is that we will end up with both an income tax and a consumption tax. Because of this fear, it would be difficult for me to support a consumption tax that did not include a repeal of the 16th amendment. If politicians can’t get enough from a consumption tax to cover their spending, tacking the income tax back on should not be an option.

Anyway, I digress. Back to the book. I’d recommend that you save $20 and just read the web site.