thoughts on the fair tax

With the usual election-season baseless promises being thrown about with regard to taxes, I've been thinking about that lately. For one, I see the Huckster is all about this newfangled "Fair Tax" idea.* It seems to be gaining support from others too, if for no other reason than it's an alternative to the current system. (One guy put it rightly that the covers of some books appear to target those who aren't necessarily in favor of this plan but are against the current one.) Some observations...

First off, I am aware that Neal Boortz, John Linder, and others have a few books out about it, and there are a few others criticizing the plan. However, having read none of these and only a handful of relevant articles, I'm by no means an expert on it. But like everyone else, I have some opinions on it anyway. And although this here Fair Tax is an intriguing alternative to the existing mess, my opinions of it tend to be negative.

Also, I'll point out that as far as I'm concerned, any tax is a bad tax and should only exist out of absolute necessity after all other possibilities have been exhausted. So I don't think we ought to have an income tax or other national tax at all unless there's absolutely no way around it. (I won't get into that argument here, but let it suffice to say that the absolute necessities that gummint needs to pay for are, at most, a small percentage of what it actually throws money away on, and so most of the taxes we pay are taxes we shouldn't be paying.) But if we must have a tax at all, then let's have the best, or least oppressive, one we can implement.

As I understand it, a simplification of the Fair Tax in a few words is this: delete the income tax and slap a 30% sales tax** on all goods instead. There would surely be caveats, of course, to exclude some things and tax other things at different rates and such. After all, without a flexible and convoluted tax system, the pols would be without one of their most-loved methods of pandering to special interests. That alone implies the tax code will never be simple. But the basic idea is there -- out with the income tax, in with the sales tax.

Okay, this is great, its supporters say. It would encourage people to save more and spend less on frivolous things, and individual saving is one of the best promoters of long-term economic stability. It would also hit everyone with a tax, not just those in higher income brackets and those law-abiding folks who actually file returns, didn't enter the country illegally, etc. It would therefore be much harder to duck and weave around. And it would even be a tax that folks could have more control over. I mean, if you don't want to pay so much in taxes, just don't buy so much stuff. This doesn't work so well for necessities but works great to deter wasteful spending. Sounds awesome, eh?

Well, yes, in some ways. It'd put more control at lower levels, as in individuals and families. It'd get aroud the problem of hidden and illegal incomes by hitting folks when they spend instead of when they earn. Perhaps best of all, it'd force the gummint to be a little less ambitious with its spending because consumer purchasing trends tend to be more volatile and less predictable than incomes. So there are many solid perks to such a system.

But as I alluded to before, I still have my reservations. For one, such a tax system would be extremely regressive. Those with lower incomes who spend most or all of their money on necessities would effectively see most or all of their income taxed, while rich folks who spend only a fraction of their income on necessities and can often even spend wiser because their money gives them more options (buy better products, plan ahead, not have to take out loans, etc.). As a simple example, assume basic needs tally $20k per year. Someone who makes $30k per year must pay at least 20% of his money in taxes, but someone who makes $120k per year could choose to pay as little as 2%. Is that really a system that could lead to a well-balanced economy with success, prosperity, betterment, etc. being accessible to more than a few?

Even being the libertarian-minded type that I am, I have a hard time believing that such an overly regressive tax structure could be good for any country. The have's will be able to save more, invest more, and continually better themselves, while the have-not's will continually be stuck at the same station because they can't get out now and can't prepare as well, or at all, for the future. That will just further widen the already-widening gap between the have's and have-not's in this country, meaning the have-not's will inevitably fall farther below the "American Dream" threshold or whatchacallit and have even less hope of ever rising above their current state through hard work and responsibility. Then, inevitably, the have's must shell out eventually to fend off and correct social and economic problems that were not their making but impact them nonetheless. In my view, any good tax system must be progressive to some degree so that this problem of accessibility is addressed. It's ugly and I don't like it, but reality is like that.

Also, consider the tremendous impact this would have on big-ticket purchases. A $20k car would suddenly require $6k up front to cover the sales tax. A $250k house would require a whopping $75k. As if down payment money weren't prohibitive enough for a lot of folks, tack on that extra tax burden and too many things become just plain unavailable to the masses. Now I'm sure there would be loopholes and exceptions and the like built into the system to lessen the impact of such things, but the impact would still be there. I mean, if you have to finance that tax or something, you're going to lose much more money over the long run that someone who can just pay it up front. Refer to the preceding paragraphs for why that's a bad thing that will perpetuate an already growing problem.

Or suppose some things are untaxed or taxed at different rates, which, as I pointed out earlier, is inevitable. Well, who gets to choose? If you just decrease or eliminate the tax for some high-dollar purchases, where do you draw the line? Some areas are more expensive than others, some people need some things more than others, etc. If you start cutting taxes in too many areas to alleviate these problems, then the potential revenue from the system would plummet fast. (I personally don't think that's a bad thing, but it would present some budget-balancing dilemmas...oh, wait, the U.S. doesn't waste time on nuisances like balanced budgets.) There's no easy solution to that, and maybe no workable one.

Overall, I think the Fair Tax is well-intentioned in a lot of ways and does address some shortcomings and injustices in the current hosed-up system, but it would turn out to be a disaster if implemented. Thankfully, and this could be the first and last time I ever say this, I don't think the Democrats would let that fly for a second. Anyone can see that it would slam the poor, and regardless of political persuasion, not hurting those who can't defend themselves should be an axiom of anyone's take on social matters.

But would it still be better than the current system? Tough call, but I don't think so. It'd still be convoluted and hard to understand. Worse than that, it'd be terribly regressive and would take a huge toll on the economy I think. Weird as it sounds, the income tax structure we have today is more fair across the board than a Fair Tax structure would be. So if we're going to fix the system, let's fix it, not just slap another system in place that exchanges one pile of problems for another.

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*It should be noted that the Huckster raised taxes considerably during his tenure in Arkansas. So if he throws his support behind a particular tax plan, beware. It may not be because he thinks it'd draw less revenue, you know.

**Some doctor the numbers and insist it's 23%, but that's fuzzy and dishonest math. Since 30 is 23% of 130, taxes are only 23% of the overall price, they say. But who the heck measures tax rates like that? Let's stick to the real world here. If you buy something for a dollar and pay 30 cents on top of that in taxes, then you just paid a 30% tax. Not hard, y'all.