Income Tax Stinks, but the “Fair Tax” Doesn’t Look Much Better

The Objective Standard published my latest article, “‘Fair Tax’ Looks Ugly in the Details.”

I point out that, not only would the “Fair Tax” (a type of national sales tax) increase the cost of items by (at least) 30 percent, but it would also tax consumable services. While usually sellers must remit the tax, sometimes consumers must do so. The worst possible outcome is a sales tax added to the income tax.

I argue:

To a large degree, the debate over the sales tax versus the income tax misses the more fundamental issue of spending levels. How the federal government collects our money matters, but how much the government forcibly confiscates matters far more. So long as the federal government spends massive amounts of the citizens’ wealth on “bailouts,” corporate welfare, and handouts to individuals, any resulting tax necessarily grows onerous.

Check out the entire article!

1 thought on “Income Tax Stinks, but the “Fair Tax” Doesn’t Look Much Better”

  1. Comment by kazriko October 2, 2011 at 4:45 PM

    The sales tax added to the income tax is indeed the worst possible outcome. I worry that if the democrats retain control, they’ll do exactly that, and in a far worse way than the FairTax.

    A VAT tax would be the worst of all possible tax codes, as it’s extremely invasive and allows for fine-grained manipulation of the economy at every stage by incompetent government officials.

    You do make some good points.

    I don’t think it makes sense for the tax to sometimes be paid by the buyer with regard to services offered by individuals. That seems to be a fairly ridiculous idea. It should always be paid by the person receiving the payment for the services.

    I find it disturbing that they’ve already started putting exceptions in. One reason that this tax is palatable is that it has a single rate with no exceptions for new goods and services. The only exception that makes sense is if a good is for resale, and when a good has already had its tax paid and is being purchased used.

    It misses some important points though. One would be that the fair tax would replace completely all payroll and corporate income taxes. This essentially shifts the taxes on a corporation from one place to another. Many retailers have stated that if it took effect, they would be able to immediately decrease the prices on all of their goods so that prices at the store would remain unchanged.

    The stimulating effects on the export economy would be immense because it would immediately lower the cost of our goods being exported by 23-30%, making our exports much more competitive.

    Paying taxes on imported goods is not a big concern, honestly it should be handled by the post office and customs like it is with Canada’s import taxes.

    The black market stuff should be offset to a great degree by it bringing other black market funds back into the legitimate market. Right now there’s a great deal of people who pay no income tax because of the gray/black economy (drugs, prostitution, etc,) and that money will now be taxed as long as it’s spent back in normal stores.

    Comment Ari October 2, 2011 at 5:51 PM

    Good points, all. But I do point out that the Fair Tax would replace all income-related taxes.

    Comment by kazriko October 2, 2011 at 10:33 PM

    Yeah, you did. Though without the idea of it being partially price neutral because it’s replacing corporate taxes and payroll taxes that make up a chunk of the price of every good sold.

    The other point I forgot to address is similar to the old comment about if you get rid of the withholding and make everyone write a check to the IRS directly, you would get a revolt against taxes. With the fair tax, all of those hidden taxes in the price of your goods and all of those painless taxes that come out of your check are now sitting right in front of you on your retail receipt separated out and totaled for you.

    If that balances out against the negatives remains to be seen though.

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