FairTax Redux

[Orat]

Okay, I've started another thread to discuss the FairTax here since the other one is pretty old and already loaded down with stuff largely unrelated to the content of the proposal itself.

At first, I liked the FairTax. It certainly seems to be an improvement over what we have now. However, my concern is that, insofar as it does have shortcomings, we'll only be further entrenching ourselves in a less-than-great system. The benefits and advantages to the FairTax are obvious. So let me enumerate the draw-backs I see:

1) Transition
How do we realistically transition from the current system to the FairTax? I think our economic system would be thrown into chaos for at least a year or two if we just suddenly dump a 23% tax on every item sold (actually, a 30% tax if you calculate it the way we currently calculate taxes), while leaving second-hand items tax-free. Doubtless, the market would eventually adjust, but it would be turmoil for a good while until that happened.

2) Constitutional Amendment
The FairTax requires the Constitution to be amended, yet the legislation that has been proposed does not amend the Constitution. The 16th Amendment (which, if not repealed could, and probably would, lead to double-taxing) was passed because the Congress did not possess the power, under the Constitution, to tax citizens directly on their incomes. The Congress would likewise require a new grant of authority by the Constitution to implement a nation-wide sales tax.

3) Federalism
Our Federal Republic was designed so that the States would be concerned with all things domestic, and the Federal government with all things foreign. As such, I believe any program or regime that causes the average citizen to have regular direct contact with the feds is a bad idea. If our system were operating as it should, the average citizen should, in their lifetime, have little to no contact at all with the federal government.

4) Size of government
I think we all agree that our government is too big, and does far too much. The FairTax, being revenue neutral, continues to feed the leviathan government, enabling it to continue doing things it never should have gotten into the business of doing in the first place. I think the more conservative among us would view the FiarTax's 23% rate (and perhaps the FairTax itself) as a temporary solution that we would want to reduce and/or repeal as federal spending gets back under control. But this is going to be very difficult to accomplish for the following reason.

5) Prebate checks
If you think the IRS and the income tax are hard to get rid of, just wait until people start receiving a monthly check from the government! While from an accounting perspective the prebate is comparable to income tax deductions, on a gut-level, people see that they get a check in the mail from the government that many will believe they need to survive month-to-month. Want to reduce the tax rate? Just try telling those parasites out there that you're going to be shrinking the size of their monthly check! All the logic in the world won't convince them that it'll be a wash -- and in fact, it might not be. They might be surviving mostly on purchasing used goods which aren't taxed anyway, so by cutting the size of their prebate check, you really are reducing their monthly budget. Now suppose we decide we're going to shrink government spending to a point we don't need the FairTax at all -- good luck! The masses will cry out about not receiving their monthly check.

Conclusion/Alternative
As of 2007, the federal budget had increased by about 33% over the year 2000 budget. It so happens that income taxes comprise about 1/3rd of our federal budget. That means that if we only cut spending back to year 2000 levels, we could afford to eliminate the income tax and replace it with nothing at all. We weren't exactly driving around horses and buggies in 2000, so that is very do-able. Heck, the government would still be doing FAR too much! But I think that would be a far better solution, and we wouldn't be further entrenching ourselves in a system that the more conservative among us would view as temporary anyway.

[msbobbie]

Everything has a flip side Orat, and you make valid, very valid, points in opposing the FairTax.

The toughest part, in my opinion, will be in educating the public that the prebate checks are not income. They will already benefit from not having Federal Income Taxes, Social Security and Medicare withheld from their paychecks, then to have this extra check dropped in their lap every month will seem like they have hit the lottery. I believe they will smell the coffee after a couple of months, however.

When I talk with people about FairTax, I advise them that if this happens they should open retirement savings accounts with the money that was previously withheld for Social Security, and medical savings accounts with the money that was previously withheld for medicare.

The money that was previously withheld for Federal Income Tax will be disposable income, but they should realize they will probably pay 25%-30% of it in sales taxes if they choose to spend it.

Educating the public could take some time, and it will take quite some time for people to actually "get it".

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[Rhythm Guy]

Elza Jones from FairTax.org will be speaking at the next Sooner Republican Assembly. It will be at Earl's Rib Palace in Moore, in June. I'll post the date when I get it, (they announced it last night, but I didn't right it down). Everyone's invited!

Our speaker last night was Senator Randy Brogdon, and if I wasn't such a schmuck, I would have announced last night's meeting before hand.

[msbobbie]

Randy is going to be in Poteau Monday evening (May 18) at 7:00 at the Days Inn. It is not on his calendar on the website but there has been announcements in the news paper and flyers up all over town.

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[Rhythm Guy]

Here's the announcment regarding the Fair Tax topic being addressed at the SRA meeting. Come on out, be part of the event. Have questions or concerns, the guy who can answer them for you will be there.

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