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.
1. What Does the FairTax Plan
Claim to Do?
2. What Are the Problems?
1. What Does
the FairTax Plan Claim to Do?
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."
2. What Are
If you have insomnia, look up "HB
25" and "S 25" at
Legislative Information on the Internet and read them for
yourself. Below are some of the fatal flaws that become
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requiring that the 16th Amendment be successfully repealed.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
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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