Fair Tax, Foul Politics

National Review Online: A National Sales Tax May Have Merit, But It's Political Suicide

(National Review Online)  This column was written by the editors of National Review Online.

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Advocates of a national sales tax to replace the income tax have built an impressive grassroots army. They have given their idea an appealing, if somewhat gimmicky, name: the Fair Tax. And they have managed to get five Republican presidential candidates to suggest that they would sign a sales-tax bill if it reached their desk. Some observers credit the enthusiasm of the Fair Taxers for Gov. Mike Huckabee’s surprisingly strong showing in the Iowa straw poll. Huckabee is the candidate most committed to the Fair Tax.

Former senator Fred Thompson is, however, backing away from the idea. Fair Tax advocates have released a video in which Thompson, asked about the proposal, appears to say he would "absolutely" sign it if elected. On August 10, however, Thompson wrote those advocates a letter that said merely that the Fair Tax was a good starting point in thinking about tax reform.

Mitt Romney’s campaign says that the Fair Tax has some attractive elements, but that the candidate would need to see details before making any pledges. Rudolph Giuliani has said that he does not think he would sign any such legislation.

The leading candidates are right to be wary. The tax code needs major reform to become fairer, simpler and more efficient. The Fair Tax is one instantiation of those goals, but its political impracticality makes it fatally flawed. If conservatives force a choice between a Fair Tax and no tax reform at all, the latter is what they are likely to get.

There is widespread confusion about what the Fair Tax would entail. If you bought $100 of clothing and paid a $30 tax on it, you would probably think you had paid a 30 percent tax. The Fair Taxers say that you paid a 23 percent tax: $30 is 23 percent of the $130 you paid in total. When they say they want a 23 percent tax, that’s what they mean.

Since there would be no more income tax in this system, there would also be no more standard exemption to make sure that the basic necessities of life went untaxed. The Fair Taxers would solve this problem by sending out monthly "prebate" checks to all Americans.

The great, undeniably attractive selling point of the Fair Tax is that it would allow the country to dispense with the IRS. But the sad truth is that if the federal government is going to collect as much money as it currently does — which the Fair Taxers say their system would — its methods of tax collection will inevitably be intrusive. The real difference between the current system and this proposal is that the primary brunt of tax collection will be borne by a smaller group of people: business owners.

Over time, then, enforcement measures could become more draconian than they are today: especially since a massive retail sales tax would create a massive incentive to evade it. That’s why every country that has ever tried to impose retail sales taxes this high has quickly moved to a Value Added Tax levied at every stage of production. Consumers rarely see or keep track of these taxes, and they seem to be fairly easy for governments to raise.

These pitfalls are beside the point, however, since a national sales tax is not going to become law. No presidential candidate could be elected on a sales-tax platform, and no Congress would enact one if he were.

A candidate who ran on the national sales tax would be able to run on nothing else. He would have to spend all of his time defending the idea. Off the top of our heads, we can think of three devastating lines of attack an opponent could use in television ads. One ad could argue that getting rid of the mortgage deduction would send home prices into free fall (something that voters are going to find especially worrisome now). Another could ask why senior citizens, having paid taxes all their lives as they made income, should have to spend their retirements paying taxes on everything they use that money to buy. A third could simply ask voters if they look forward to paying a brand new tax.

There are answers to each attack. But no Republican candidate, especially in the daunting environment of 2008, is going to want to have to make them. Republicans cannot win a national election without the tax issue. If they ran on the national sales tax, Republicans would be taking one of their natural strengths and making it into a liability. Which is why we expect them to say nice things about the Fair Taxers’ passion, and move on.

[ih2005]

NRO, I''m appalled at you! FairTax benefits:

INDIVIDUALS:
%u2022 No more tax on income - make as much as you wish
%u2022 You receive your full paycheck - no more deductions
%u2022 You pay the tax when you buy "at retail" - not "used"
%u2022 No more double taxation (e.g. like on current Capital Gains)
%u2022 Reduction of "pre-FairTaxed" retail prices by 20%-30%
%u2022 Adding back 29.9% FairTax maintains current price levels
%u2022 FairTax would constitute 23% portion of new prices
%u2022 EVERY household receives a monthly check, or "pre-bate"
%u2022 "Prebate" is "advance rebate" for monthly taxes on poverty level spending
%u2022 FairTax''s "prebate" ensures progressivity
%u2022 NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
%u2022 FairTax captured when illicit income is spent

BUSINESSES:
%u2022 Corporate income and payroll taxes revoked under FairTax
%u2022 Business compensated for collecting tax at "cash register"
%u2022 No more tax-related lawyers, lobbyists on company payrolls
%u2022 No more embedded (hidden) income/payroll taxes in prices
%u2022 Reduced costs. Competition - not tax policy - drives prices
%u2022 Off-shore "tax haven" headquarters can now return to U.S
%u2022 No more "favors" from politicians at expense of taxpayers
%u2022 Resources go to R&D and study of competition - not taxes
%u2022 US exports increase their share of foreign markets

[ih2005]

FairTax benefits (cont):

THE COUNTRY:
%u2022 7% - 13% economic growth projected 1st year of FairTax
%u2022 Jobs return to the U.S., foreign corp''s "set up shop" here
%u2022 Tax system trends are corrected to "enlarge the economic pie"
%u2022 Larger"pie," thinner tax-rate "slices"
%u2022 23% portion of price pressured downward as "pie" grows
%u2022 FairTax sets new global standard. Other countries will follow

Trying to "flatten" a NON-FLATTENABLE income tax will likely result in an IRREVOCABLE economic meltdown ( http://snipurl.com/meltdowninprogress ) ACT: http://snipr.com/scrapthecode

[omega39-2009]

There is widespread confusion about what the Fair Tax would entail. If you bought $100 of clothing and paid a $30 tax on it, you would probably think you had paid a 30 percent tax. The Fair Taxers say that you paid a 23 percent tax: $30 is 23 percent of the $130 you paid in total. When they say they want a 23 percent tax, that%u2019s what they mean.

And if you put that $130 on the credit card you would be paying interest on your taxes. If you bought a $15,000 dollar car you would be paying interest on $19,500, it''s easy to see who is behind this.

[wireferee]

Under this system you say that we "could make as much as we want." However, are we really making more if we are paying a 23% tax on goods? I may have more deposited into my checking account, but when I go to the store, I''m still paying the government the money it would have received in a paycheck withdrawl. I could see keeping the system the way it is an adding a .01% national sales tax. This would generate a huge amount of income for the government, and it could help us with our debt and credit problems.

[wogerwabbit]

As soon as I saw the name "Fair Tax" I knew it had to be a scam. Just like the "Patriot Act" and "No Child Left Behind" and the numerous other examples of doublespeak our government uses to dupe us into believing their claims.

[cyberus-2009]

No matter how you spin it .. all sales tax systems including VAT, hit the lower income levels harder since the majority of their income is "required" spending, food, utilities, transportation etc.

A "Flat" income tax in contrast by its very nature impacts all income levels equally.

However a Flat income tax system will never happen, the capital gain/loss and other "special rate category" people will never allow it.

[sjc_1]

A consumption tax is regressive, everyone should know this by now. They keep trotting out consumption taxes or flat taxes in a shell game designed to bamboozle the public. The poor pay a far higher percentage of there incomes to buy the things that they need to survive. The wealthy have their servants buy whatever they need out of pocket change. A luxury tax would be good. Necessities are not taxed and luxuries are taxed. I think we all know which is which.

[emmac6]

I think there are too many ways around the consumption tax. If there was such a tax, I would probably mostly buy used from thrift or consignment stores. Food I would assume would be exempt from such a tax. I''d also try to buy things used from sellers online like ebay to avoid paying any tax. Plus such a tax would drive plenty of businesses out of business. I am willing to pay more to support a small business over a large one, but if I had to pay an additional tax on top of that extra, I''d probably be financially forced to buy from a larger store where goods are usually cheaper.

[roger3815]

Their "fair tax" sounds an awful lot like fraud. People we''ve been over this and over this. This is nothing but a shell game designed to shift the tax burden onto the shoulders of the people who can least afford it and who''ll get the least benefit from it.

[incog-nito]

I must agree that the sales tax is the fairest and simplest way of taxation. Why do people have to spend countless hours and hundreds or even thousands to dollars to figure out how to pay the government? That in itself is regressive, because the poor can''t afford accountants and may miss out on deductions. We have a cottage industry of people (tax accountants) who contribute nothing to society except pushing paper and counting beans. And if you happen to make a mistake you can be penalized for it. That is so absurd I don''t know why people put up with this scheme.

As for the argument that the poor will be hurt, just tax certain goods such as food at a lower rate. Problem solved.

[elz523]

NRO, I''''m appalled at you! FairTax benefits:

INDIVIDUALS:
%u2022 No more tax on income - make as much as you wish
%u2022 You receive your full paycheck - no more deductions
%u2022 You pay the tax when you buy "at retail" - not "used"
%u2022 No more double taxation (e.g. like on current Capital Gains)
%u2022 Reduction of "pre-FairTaxed" retail prices by 20%-30%
%u2022 Adding back 29.9% FairTax maintains current price levels
%u2022 FairTax would constitute 23% portion of new prices
%u2022 EVERY household receives a monthly check, or "pre-bate"
%u2022 "Prebate" is "advance rebate" for monthly taxes on poverty level spending
%u2022 FairTax''''s "prebate" ensures progressivity
%u2022 NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
%u2022 FairTax captured when illicit income is spent


Posted by ih2005 at 12:44 AM : Aug 19, 2007

And most importantly of all: THE RICH PAY THE SAME TAX RATES AS THE POOR (hence the Fair in Fair tax) and NO MORE TRANSFER PAYMENTS (let them eat cake)!!!

Keep trying Fairtaxers, someday average Americans may fall for your BS. Today ain''t the day!

[incog-nito]

People who oppose the national sales tax claims that it''s fraudulent or regressive, yet cannot put forth any coherent argument againts it.

It''s the absurd complexity of the current tax code that is regressive and hurts the poor, because it allows for special interests to take advantage of through countless exemptions, deductions, credits, etc. that the poor are unlikely to be able to benefit from anyway. By the way, the tax code should not the arena for the government to perform social engineering, which is exactly what it''s doing right now.

[incog-nito]

BTW, Warren Buffet himself said that the current system is not fair, and that his secretary pays a higher rate than he does, due to the countless ways he can shelter his money, unlike most working people

[lorinkundert]

Allowing the current system to continue abusing people who by law are not liable for taxes will be suicide as more people start learning about the system. Google "Cracking the Code"

[elz523]

People who oppose the national sales tax claims that it''''s fraudulent or regressive, yet cannot put forth any coherent argument againts it.
Posted by incog-nito at 05:01 PM : Aug 19, 2007


I beleive that is the coherent argument. A sales tax is regressive and fraudulent. It can be made legitimate, but it will remain regressive.

This is just another attempt by the very wealthy to change tax policy to favor them, as if they were suffering today. This is the companion piece to the elimination of the inheritance tax. Elimating the inheritance tax and going to a flat tax (which is what a sales tax is) only benefits the rich. Tell me please how the poor would benefit (or the middle class for that matter), other than some costs saved in preparation. You know what though, the poor typically aren''t paying hundreds of dollars to pay thier taxes, they generally will have only wage income and can typically do it themselves.

If you want to do something to make a fairer tax, eliminate some of the tax breaks that typically apply mostly to the wealthy.

[andor3]

yep this is bad--it it''s regressive even if implemented right, so it hits the low-income people more,

A fair tax is one that requires the high-income and corporations to pay the same tax everyone else does, instead of the welfare system that provides them funds now.

But I have to admit the NRO trying to say what constitutes "political suicide" is pretty funny--these guys couldn''t find the political pulse if they had to.

[incog-nito]

elz523: Your argument has some valid points. I will try to address them.

First, the sales tax can be made more progressive with different rates for different goods, for example, higher rates for big tickets, luxury items. Second, strictly speaking a flat tax is by definition FLAT, not regressive. The current system seems progressive on the surface, but with so many loopholes it is actually regressive, affording for the wealthy many ways to shelter their money.

As long as we have a system that encourages social engineering like the current one, we will have abuses that only benefits certain groups. Why should homeowners get a tax break while renters, who are typically poorer, do not? If we are to avoid continual class warfare, we need a tax system that is TRANSPARENT and does not favor one group over another.

[incog-nito]

For those of you who think the current tax code can be made more fair, let''s assume you''re right. Let''s say a new administration gets elected and makes the tax code more fair and equitable, great! But what about the next administration? If you have a tax system that is not transparent to everyone, but easily subject to sneaky changes, you will have a system that is easily abused, if not now then sometimes in the future.

[jt_lancer]

Taxation is theft, no matter what form it arrives in. Even the tax rate for the Fair Tax is far too high anyways. You still must give up 23% of all the money you spend and turn it over to the State.

Besides, nearly every greedy politician will balk at any change in the tax code if it threatens their ability to buy votes through pork barrel legislation. After all, what do politicians have if they cannot spend other people''s money? NOTHING.

Politicians and bureaucrats are leeches on the *** of society. They create NOTHING. They produce NOTHING. They merely play God by redistributing other people''s property by force, as they see fit.

[andor3]

NRO are getting desperate for credibility. Here they take an idea that has been around for a very long time, and that everybody knows is not going to happen. And they predict that it isn''t going to happen.

Hope they won''t forget to remind us how they wisely saw this one coming so we should listen to every other prediction they might make.

[archangelric]

a sales tax is by definition regressive: the poorer people pay a higher percentage of disposable income (income after living expenses like food, housing, etc.)

All the arguments about the current system being unfair come down to the complexity, deductions,etc.

So fix it. Make it a progressive rate, deductionless, exemptionless, exceptionless system. Simple postcard sized form:

I made xxxxx this year
tax from tax table yyyyyyy
tax paid through withholding zzzzzzz

subtract yyyyyyy from zzzzzzz

amount to be paid or refunded

You build in all the deductions to the rate but everyone gets that rate no matter single,married, children, etc. no matter how the money is earned (wages, capital gains, inheritance is just income, etc.).

you get government out of monkeying with the economy, let free markets decide prices.

you cut the IRS down in size and power - no need for audits, it''s all straight forward, no hidden income

Then again, this is too reasonable; never happen. We''re far more likely to get the rich peoples favorite tax: a sales tax; the most UNfair tax of all

[brianbwb-2009]

See what I mean "conservatives"? That a bublication you seem to hold in esteem would suggest a new tax is so opposite your cherished "values", it begs the question, when did the "neocons" become tax and spenders?

Add to this Hillary and all the so-called "Democrats" who talk about "phased withdrawal from Iraq", which is just stalling so they can get some of the war profiteers'' kickbacks?

They all are just BS, and the NRO is now endorsing formerly "liberal" positions.

Some of us do have the capacity of memory.

[incog-nito]

Personally I''d rather have a "regressive" sales tax that I don''t have to think about rather than the current system, which is still regressive except for the poorest, that I have to spend countless hours and/or pay somebody to figure out, get penalized if I get it wrong, worry whether I might audited, wonder whether I might miss out on some obscure deductions. Time after time it''s been shown that accountants working on the same return will each get a different figure. Figuring out your taxes becomes a guessing game, to see how much you can get away it.

I know, I know, it will never happen anyway.

[elz523]

hmmmmm, a regressive tax that lets the rich off the hook (sales tax) or continuing to use a slightly progressive tax (current income tax) that needs to be simplified...

I say we simplify the current income tax system and make it even more progressive by raising the highest marginal rate and pay for our current obligations and the debt that has already accumulated. That can be done. No point in throwing it out because we can''t make it work when we can with a little commitment.

[trillion1]

The word "fair" in this country today does not apply.

[incog-nito]

elz523:
The wealthy make their money mostly through investments anyway, not working for a paycheck like the rest of us. It doesn''t matter if the income tax is progressive or not, it will only affect the upper middle class. The income tax was conceived to target the working stiff, not the wealthy.

[incog-nito]

To follow up, the same people who want to keep the current system also want to abolish the capital gains tax, because it''s "double taxation". What will happen then, is that the wealthy, who make their money mostly through investments, end up paying NO tax at all. Now THAT''s regressive.

The current tax system is broken. Time to replace it.

[incog-nito]

People who want to preserve the current system and tweak it to make it more "progressive" are naive and miss the point. The income tax should never have been there in the first place. It did not exist early in American history. It is designed to target working people (the WORKING CLASS) who make their money through EARNED INCOME, not the wealthy (the INVESTOR CLASS) who make their money through CAPITAL GAINS. By the way, the capital gains tax is already flat. Making the current system more progressive will still only affect working people at the upper end.

If the capital gains tax is abolished, as many including working people seem to want, then the Investor Class will pay NO tax at all. The sales tax just reflects the reality that taxes are never that progressive in the first place. It removes the complexity that places a burden on people. It eliminates the double-taxation of the capital gains tax on working people, while at the same time ensures the wealthy pay their share (which was already flat anyway).

[elz523]

People who want to preserve the current system and tweak it to make it more "progressive" are naive and miss the point. The income tax should never have been there in the first place. It did not exist early in American history. It is designed to target working people (the WORKING CLASS) who make their money through EARNED INCOME, not the wealthy (the INVESTOR CLASS) who make their money through CAPITAL GAINS. By the way, the capital gains tax is already flat. Making the current system more progressive will still only affect working people at the upper end.
Posted by incog-nito at 11:56 AM : Aug 20, 2007

Incog-nito, how do you propose the investor class be tased under a sales tax? If they are investing they aren''t spending, so wouldn''t all of their income from investments be tax free. As you said, who has the investments? The poor? Huh uh.

The rich do pay taxes and they have no bigger goal than to eliminate transfer payments by reducing their tax burden, through implementation of a flat tax and elimination of the inheritance tax. You are either being naive or disingenuous.

The answer isn''t to implement a new tax, but to make our current tax system more progressive. How about higher marginal rates on capital gains? You know working people pay the sales tax as well. How about we just eliminate the income tax and make up for the loss of income by increasing the capital gains tax? Then working people would be mostly exempted. Good idea eh?

[fairtaxfraud]

There is lots of propaganda from conservatives touting the FairTax bill as something that would help the middle class. Nothing could be further from the truth. The fair tax hurts the middle class and poor. The fairtax takes away the home mortgage deduction and puts a new 30 percent tax on food, shelter, clothing, medical bills, surgery, legal bills etc. On the other hand it makes inheritances for billionaires tax free and eliminates taxes for the wealthy who live off all interest incomes. Before you make up your mind on the FairTax, see what the opposition is saying on fairtaxfraud.com. The Fair Tax Fraud Institute.