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Home > Issues > "FairTax" Scheme Unveiled

"FairTax" Scheme Unveiled
by Daniel Newby, August 2, 2005 updated on 8/11/05


Summary: Who wouldn't want to repeal the 16th Amendment and income taxes, abolish the IRS, and make tax code easy to comprehend?  And doesn't a national sales tax sound better?  Examine a few reasons why the new "FairTax" proposal is not all it is cracked up to be.

 

Topics:

1. What Does the FairTax Plan Claim to Do?

2. What Are the Problems?

 

1. What Does the FairTax Plan Claim to Do?

According to Americans for Fair Taxation:

"The FairTax plan is a comprehensive proposal that replaces all federal income and payroll taxes with an integrated approach including a progressive national retail sales tax, a rebate to ensure no American pays federal taxes up to the poverty level, dollar-for-dollar revenue neutrality, and the repeal of the 16th Amendment. This non-partisan legislation (HR 25/S 25) abolishes all federal personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes and replaces them all with one simple, visible, federal retail sales tax collected by existing state sales tax authorities. The FairTax taxes us only on what we choose to spend, not on what we earn. It does not raise any more or less revenue; it is designed to be revenue neutral. So it is also cost neutral the final cost for goods and services changes little under the FairTax. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system."

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2. What Are the Problems?

If you have insomnia, look up "HB 25" and "S 25" at Thomas: Legislative Information on the Internet and read them for yourself. Below are some of the fatal flaws that become painfully evident:

1) Federal Power Grab. HB 25 and S 25 grant additional taxing power without first requiring that the 16th Amendment be successfully repealed. According to the bill summaries and my cursory look through them, neither bill actually repeals the 16th Amendment.  This is a big talking point for Americans for Fair Taxation, but notice that they list repeal second under "The Solution is the FairTax".

This is a common tactic used by phony tax reformers.  Once this system is in place, there are no assurances that the federal government will not reinstitute income taxes in addition to sales taxes?

2) Bye-Bye Internet Freedom. This system would create tremendous additional incentive to tax the Internet. Right now, people flee to the Internet to avoid state sales taxes (not to mention federal income taxes). What happens when you add a huge federal tax on end purchases?  Once the government obtains this foothold, additional regulations will inevitably follow.
Note: Learn more about the ongoing effort to tax and regulate the Internet.  Americans for Tax Reform, one of the larger organizations that now support the "FairTax" scheme, used to at least pretend to be an ardent protector of the Internet.

3) IRS's Big Brother. Would the IRS really go away, or would something bigger police business, the Internet, etc.? Check out some of the language in federal-state "cooperative" arrangements.  The federal government already regularly utilizes "cooperative" arrangements and perverse financial incentives to confiscate private property without due process, increase regulation, and destroy freedoms.

4) Promotes Marxian Economics. Are there any relevant historical examples of a tax "reform" proposal that was "revenue-neutral"? Particularly when sponsored by an organization that admits from the get-go that they are not interested in reducing the size of the federal government, want to force everyone to "pay their fair share", and desire a "progressive" or "graduated" tax as Karl Marx called for in The Communist Manifesto?

5) Divides & Conquers. The "graduated" tax deserves another mention.  If your objective is to limit government, the poor must be equally (i.e. as harshly) taxed as are the rich.  That way, everyone cries and screams when anyone suggests raising taxes. If you start off with large inequities, you are doomed to greater inequities in a very short period of time.

Additional Note (8/11/05): Lowell Nelson of Highland, Utah, also brings up the valid point that the "FairTax" scheme is a further attack on state sovereignty. Taxes, like representation, used to be determined according to population and assigned to the various states to collect. States had more latitude in determining how to tax their citizenry in order to meet their federal tax assessment. In theory, the federal government would then have to beg the states for funding (and be on its best behavior to get it).
Note: The wisdom of this methodology could also be debated. It may be preferable to ignore population and empower the federal government to uniformly tax only imports from foreign countries.  In order to grow the economy and therefore the federal budget, increased trade would be required, therefore, a lower tax rate. The federal government would rely upon the states to collect that tax and no others, providing them another incentive to be on their best behavior.  Additional checks could also be helpful, but this departs from the original point of this article.

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