Tuesday, August 16, 2005

Fairtax

Jesse Taylor at Pandagon dissects The Fairtax Book by Neal Boortz and Congressman John Linder (R-GA). Because every once in a while someone's gotta drag out the old flat tax nonsense again.

Excerpts

Part 1:
Boortz and Linder are asking you to absorb the taxation costs of businesses,which will result in goods being the same price. They also propose that the same money which is covering the sector of business taxes will simultaneously cover the sector of personal income and payroll taxes, contributed by individuals and not a part of any intrinsic cost of goods and services. The money is being effectively doubled (actually, more than doubled, as those "embedded taxes" don't make up half of all taxes collected), even as it becomes obvious that the Fair Tax only replaces one kind of tax revenue, not all of it. Long story short - the rate would have to be raised significantly to actually make up for the loss of all federal taxes...which would in turn dampen all those wonderful benefits of the Fair Tax, which is guaranteed to grow our economy tenfold within the blink of an eye.


Part 2:
It's an elegantly simple deception, and taken at its face value, seems like a good way of raising all the revenues that the current tax system does. Unfortunately, it doesn't, and Linder and Boortz make the case against their tax wonderfully.

Today, we'll discuss that 23% tax rate.

...

"I've read some critical articles claiming that the sales tax will really be 30 percent or more, not 23 percent. Who's telling the truth?

In a sense, both sides are. But critics of the FairTax have a way of dewlling on this 30 percent figure, so we're going to spend some time on the answer to this question. LEt's see if we can make it interesting as well."

...

Boortz and Linder are arguing that the more complex syntax that's completely non-predictive and serves no useful purpose is the accurate one, and the syntax that predicts exactly how much tax you're going to pay is the dishonest one.


Part 3:
Every single purchase a government makes, whether it be schoolbooks for schools, firearms for police officers, gardening tools for park services or construction materials for roads, is subject to a 30% tax (and this isn't taking into account that an actual tax in this plan would, by necessity, have to be at least 10 to 15 points higher), in comparison to a purchase by a private business which would be entirely untaxed.

This makes the cost of the government doing anything prohibitive. The individual consumer and government now bear all taxation costs for business - they're paying for all the services that help business go, while businesses contribute nothing back to the system. It also makes private industry doing anything cheaper, but also insures that privatization can never take place - state and local governments would still have to pay 23% on anything that private company did for them, since the service would be paid for by the government.

For a small-government Republican and an even smaller-government libertarian, this is beyond bizarre. The federal government expandsmightily (in relation to state and local governments), while propogating a tax system which decimates state and local governments by gaming the system towards private replacement of all non-federal government. Private business can do everything cheaper than non-federal government, not because of any natural superiority of the market, but because the federal government enforces a system that overtly favors private business. State and local governments would become little more than dispersed bureaucracies serving in lieu of the now-defunct IRS.


Part 4:
So, we now have a way to avoid taxes altogether, and an unparalleled nightmare for states. But wait - this system screws over businesses, too! Right now, if there's a question about your federal tax return, you deal with one entity - the IRS. The envisioned IRS 2 puts all enforcement powers in the hands of the states, meaning that a cascading error in tax collection would result not in one audit or question, but likely dozens. This doesn't even address interstate fighting over who gets to collect tax revenue for a national corporation - if you run Gadgets, Inc., based out of Ohio, would you rather coordinate 50 payments for the same tax to 50 states, or one payment for the same tax to one state? States will push for the former, businesses for the latter. If transactions are taxed based on point of sale rather than place of incorporation, the current headache of tax compliance turns into the headache of potentially paying the right tax to the wrong branch of the IRS.


More Parts when they become available.

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