(Originally published June 2, 2008)
You don’t have to have a degree in economics to see the failings of the proposed FairTax, although economists say there are plenty. You don’t need to be a lawyer or an accountant to see where it would all go wrong, although lawyers and accountants who have studied the idea say it’s unworkable.
All you need is the good sense your momma and daddy gave you, along with a knowledge of human nature.
The core of the idea is to replace the federal income tax, estate tax, capital gains and payroll tax with a 30 percent sales tax on all goods and services. And to offset the impact of a high sales tax on low-income Americans, every household in the country would receive a significant check every month from the federal government. This year, for example, a family of four would get a monthly rebate of $537, regardless of their income.
Human nature being what it is, tens of millions of households would quickly become addicted to that check. Each month, they would depend on the generosity of their dear Uncle Sam to help them make their car or house payment or buy groceries for their kids. And that ought to drive conservatives nuts. Their biggest fear is a populace that becomes dependent on government, and the FairTax would do more to encourage dependence on government than any program liberals have ever concocted. William F. Buckley would turn over in his grave at the thought that the FairTax was conservative.
Conservatives ought to hate the FairTax for another reason as well: It tries to make our tax burden invisible. Its chief sponsor, U.S. Rep. John Linder of Georgia, brags that by eliminating the income tax and the IRS, the FairTax will “make April 15th just another spring day.”
That’s fine if you don’t care much about higher taxes. Without April 15, Americans would never have the chance to get outraged at seeing just how much they pay in taxes every year. Instead, under the FairTax, the federal tax would be safely hidden in the price of an item or service, where it would barely be noticed.
That creates a great temptation for politicians. A hidden FairTax of 30 percent could quietly become 30.5 percent, which becomes 31 percent, which becomes 31.5 percent, all without the taxpayer noticing a thing. A painless and invisible tax such as the FairTax ought to be a thinking conservative’s nightmare.
So why do some who call themselves conservative embrace the FairTax? In part, they are attracted by the claim that Congress would no longer be able to help their friends and punish their enemies through the tax code. The FairTax would apply to all sales of services and new goods, with the sole exception of tuition. New houses would be taxed; medical care would be taxed; food would be taxed. Even the federal government would pay the tax to itself on goods and services. To FairTax advocates, that universality is one of its biggest selling points.
But it is also hopelessly naive. Passage of the FairTax would not change human nature or the nature of politics. Well-paid lobbyists would not stop begging Congress for special tax breaks on behalf of their clients, and nothing in the FairTax legislation could stop them. Oil companies would demand an exemption, hospitals would demand an exemption, farmers would demand an exemption, and those exemptions would be granted for the same reasons they are granted today.
Yet somehow a FairTax movement that believes in its heart that Congress is a corrupt servant to special interests has fooled itself into believing that very same Congress would become a stalwart champion of integrity under the FairTax. It is an act of willful self-deception.
Then there’s the matter of fairness. At Fairtax.org, you’ll find a calculator that purports to tell you how much you’ll save in taxes under the FairTax. I can almost guarantee that after you plug in your financial information, you will be promised significant tax savings. My wife and I certainly would pay a lot less. Based on their recently released tax returns, so would George and Laura Bush. Under the FairTax, their tax bill would fall by $54,000 on an income of more than $900,000.
That’s interesting, because FairTax advocates claim the tax would raise just as much money as the current system. So if a couple with a million-dollar income pays a lot less, who pays more? After repeated experiments with the calculator, I finally found that household. A couple with two children, a rented home and income of $40,000 would pay $860 more.
In other words, to balance out the $54,000 tax cut for someone making a million dollars a year, we would have to raise taxes on 62 couples trying to raise their family on $40,000 a year.
And they call it a FairTax?
FairTax advocates claim that a lot of the missing revenue would come from illegal immigrants, but that too fails the common sense test. Those immigrants spend next to nothing on taxable services, from lawyers to barbers. They buy used cars, not new cars; used clothing, not new clothing. They send a lot of their earnings back home, where it would escape taxation, and what money they do spend here would probably end up in the underground economy that they themselves personify.
(Of course, Linder and others claim that with the FairTax, the underground economy wouldn’t be a problem, even though common sense tells you that millions of people would be very motivated to evade a sales tax rate of at least 30 percent.)
But the bottom line is, none of it matters anyway. FairTax supporters are being played for suckers by politicians who have signed their names in support of the proposal but have no intention of enacting such a crazy idea.
Look at the record. Linder’s “Fair Tax Act” has been introduced in every Congress since 1999, drawing scores of co-sponsors. For eight of those years, Republicans controlled both the House and Senate. Yet with all those co-sponsors and all that time under GOP control, FairTax legislation never got so much as one subcommittee vote on its provisions.
That’s because nobody, including its co-sponsors, takes it seriously. And if the idea was ignored when Republicans were in control, what does that say about its future under Democrats?
To make matters even more farfetched, Linder now wants to hold off implementing the FairTax until we also repeal the income tax and the 16th Amendment. So a group that lacks the muscle to get a subcommittee vote on their pet proposal is now going to amend the Constitution with two-thirds majorities in the House and Senate and approval of three-fourths of state legislatures?
Of course, it’s fair to wonder why anybody would even write about a bill that has no chance whatsoever of becoming law. I have two answers: One, I guess I’m bothered by the fact that so many well-intended people have been suckered into backing the idea; and two — well, I doubt I’ll ever waste my time on it again.