ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Monday, March 07, 2005

Fair Tax

If you don't have a subscription to The Wall Street Journal, you're missing out...

Today's edition has commentary by Laurence Kotlikoff, promoting the concept of the Fair Tax bill. Some snippets... (again, if you don't subscribe, do so ASAP)

Our tax code is a mess for a reason. Special interests pay for special favors. And with 17,000 pages and counting, there's plenty of places for our politicians to hide the kickbacks. Meanwhile, all the exemptions, deductions, exceptions and special provisions reduce the tax base, which means higher tax rates and smaller incentives for individuals and companies to produce income. And whether the tax breaks are set in fine print or spelled out in bold type, they generally favor the rich, making our tax system less progressive than is generally believed.
When tax rates get really high, people stop working and saving altogether. At that point, everyone can see the system's nuts. But even moderate tax rates can cause major economic distortions. Unfortunately, our tax rates, particularly on labor earnings, aren't moderate. They're high. This is true despite recent federal tax cuts. Add together all the federal and state personal income, payroll, excise and sales taxes, and you quickly reach effective wage tax rates of 50% -- and not just for the rich and middle class. For the poor, the rates reach this level thanks to their loss of welfare and health-care benefits as well as tax credits from earning more money.
The FairTax proposal, which awaits Congressional passage as H.R. Bill 25, would greatly rectify this intra- and inter-generational inequity and do marvelous things for our economy. The FairTax (details at replaces not just the federal and corporate income taxes, but also the federal estate and gift taxes, and the highly regressive FICA payroll tax with one simple and fully transparent federal retail sales tax. In addition, the FairTax provides a highly progressive rebate to each household of their sales tax payments on consumption expenditures up to the poverty line
Over the next few decades, the FairTax would likely raise U.S. GDP by 15% relative to its alternative value. Here's why. The FairTax generates much bigger incentives to work and save. It also redistributes from rich older spenders to younger savers. While it's not widely known, America's biggest spenders are actually the elderly, and for good reason. They know they have fewer years left to spend their resources and, consequently, are consuming their resources at more than twice the rate of the young.

What about the poor, both young and old? Wouldn't they be worse off under the FairTax? No. The FairTax's rebate would leave poor young households paying a zero net sales tax. And it would leave poor elderly households better off thanks to both the rebate and Social Security's automatic adjustment of benefits to any increase in prices.
Fundamental tax reform is long overdue. Consumption taxation is the way to go. The FairTax is a reform every Democrat who cares about equity should love. And it's a reform every Republican who cares about efficiency, transparency and growth should champion.
I read this article by Neal Boortz (Imagine receiving 100% of your paycheck!) several months ago and while I was skeptical of a consumption tax at first (preferring a Flat Tax proposal), I'm now considering the Fair Tax as the better (and more politically realistic) alternative.

So, fellow conspirators... Any thoughts on The Fair Tax? Imagine 100% of your paycheck and a rebate for consumption as outlined in greater detail in Boortz' piece. Add to that the freeing-up of all of those IRS auditors and bureaucrats who could spend their time doing something useful. and the Tax Accountants... and the software developers working for Inuit and Kiplingers, etc, etc to make filing a return easy. Oh, I suppose the dems would take this opportunity to finally get their grubby little hands on "lost *cough* revenues" from internet commerce, but let's not talk hypotheticals of the legislative process. Would the Fair Tax be more preferable to the current system? How about when compared to the Flat Tax (which I think is politically untenable)?

Your Co-Conspirator,
ARC: St Wendeler