Just finished reading The FairTax Book
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.
Great comments on the book.
The repeal of the 16th amendment was mentioned in the book. To sum up the authors, repealling it would require a significant amount of political capital. And not that it isn’t worth fighting for, however we should focus on eliminating the income tax first, inacting the FairTax and then work on the 16th ammendment.
Comment by Tony — December 2, 2005 @ 10:42 am
There’s a real good summation of FairTax on the Lew Rockwell blog at http://lewrockwell.com/orig6/fair-tax.html. In short, it’s not fair at all - it’s another bad idea.
First off, a huge national sales tax on EVERYTHING (there are no exceptions - food, services, yard sale items - all are subject to tax) is very, VERY, regressive. While I’m not a fan of “tax the rich, feed the poor”, sales taxes on necessary items like food hurt those least able to pay. Assume a family of four spends $100 a week on food. If that family makes $10,000 a year, they’re spending half on food, and 22% adds up to 11% of their annual income. Now, assume the same family makes $50,000 a year. Now, that same $100 a week plus 22% tax is only around 2% of their annual income.
Second, can anyone imagine the costs of cutting 350 million checks per month to everyone? Right there, that should be the deal breaker - those costs would include everything from the actual checks, the printing fees, envelopes, even postage fees (think the government will not include the government postal service in this scheme?).
Third, FairTax makes EVERYONE who sells anything a government tax collector. Because there are no exceptions, if you sell something, you must cover the tax. Sell some stuff on eBay? Collect the tax or become a criminal. You’re teenager mows lawns in the summer for some cash, or your 9-year-old runs a lemonade stand? No exceptions, remember. It even applies to Internet sales, which are right now not subject to sales taxes - how would you enforce this over national borders? Where’s the server located? Exactly how much business do you want to drive out of the United States in order to escape predatory taxation.
Lastly, this idea does NOTHING to address the real problem - the government is too big and collects too much in taxes. The book actually states that FairTax is just meant to get rid of the IRS and find another way to collect the same amount of money. But like I said earlier, you’ll need some agency to cut the checks, some agency to enforce the collection of the sales tax, and some agency to oversee everything. You’ll get rid of the IRS, and replace it with something else entirely, plus bolster the GAO and FBA, most likely, to handle accounting and enforcement duties.
FairTax is misguided at best, hostile and negligent at it’s worst, and represents the wrong solution to the wrong problem. We need to get rid of the IRS, but not by replacing income tax with another tax - we need to get rid of the income tax period.
Comment by Jon — December 16, 2005 @ 6:17 pm
A Fair Tax plan Overview Part 1
The FairTax plan is a plan to replace federal income and payroll taxes. This includes personal, gift, estate, capital gains, alternative minimum, Social Security/Medicare, self-employment, and corporate taxes.
Trackback by The Staunton News Leader — February 6, 2006 @ 4:15 pm
Jon, you mentioned the following:
“Second, can anyone imagine the costs of cutting 350 million checks per month to everyone?”
That’s kind of funny because our current tax system includes the costs of sending 350 million people rediculous amounts of paperwork and the immense population of goverment workers required to interperet this paperwork. I don’t thing cutting the checks will be the problem.
Comment by Tom — April 16, 2006 @ 1:25 am
“True patriots,” like you, Jon, rail against the FairTax plan (which becomes a de facto defense of the INCOME TAX), because they apparently believe:
• Workers love having their pay confiscated, hourly, through gov’t withholding and don’t mind getting their money back by involuntary servitude - to the tune of 50 hours/year (on average) - preparing an annual tax return
• It’s better to have theIRS fishing through citizens’ income transactions (complete with audits, interest, penalties, and threats against individuals and families as well as confiscation of their homes and bank accounts) rather than - Gawd forbid - issue a gov’t check to an individual (while pretending that Social Security payments disbursement logistics really can’t work for “prebates”)
• A “true patriot” doesn’t challenge the tax system with a workable alternative like the FairTax that fixes only some problems, they want it ALL fixed - now
• A “true patriot” doesn’t get up off his/her duff to actually do something to effect constructive change, they just sit around blogging and complaining about government spending - and critiquing workable alternatives (like the FairTax plan, for example)
• “Hidden taxes” in higher prices are fine, because they’re not “taxes” (hey, forget that families are really paying business’s costs for complying with a business income tax)
• Only lobbyists, special interests, and business deserve “handouts” (the politician gets a payoff from a lobbyist, the lobbyist gets a payoff from its client, and the citizen gets higher taxes and/or prices that pay for it all)
• It’s far better to have a gargantuan tax collection “service” in Washington, than to have 50 decentralized, smaller, leaner state collection agencies collecting taxes from fewer sources
• That certifying the number of persons in your family (even, if every month) is an abrogation of our freedom - more intrusive and complex than filing a tax return every year subject to threats and intimidation by theIRS.
I’m certainly glad that there are “true patriots” like you - out there blogging - to help bring real “change” to America (via the coffers of theIRS).
Comment by Ian — June 27, 2007 @ 7:37 pm
I find this idea to be both astounding and rediculous. While naturally opposing high taxes I find them to be necessary if we are to enjoy the very few services government ought to provide. In my opinion Milton Friedman’s (and other’s) idea of replacing our system with a flat/negative income tax. In the end it makes no little difference what is taxed, income or consumption, since these will be fairly relative. What is more important is that taxes are low and fair. A flat tax would seriously reduce the financial burden currently imposed by our IRS by strenuously simplifying the code and therefore eliminating thousands of these unproductive jobs. And it would also replace the welfare system, cutting costs as well, while at the same time providing minimal subsistance for poor families but also providing incentive to work. I’m sure you could find the details of his proposal through a simple google.
Comment by Ben — July 3, 2007 @ 12:33 pm
I believe the FairTax excludes food, shelter, and other necessities. It’s been awhile since I’ve read that book, but the premise is that poor Americans will find their tax burdens actually reduced, since necessities are excluded, prebates act as minimum subsidies, and the overall economic growth such a system would spur should shift labor market pressures in favor of workers.
www.robviglione.com
Comment by Rob Viglione — September 11, 2007 @ 5:57 pm