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    Saturday, August 06, 2005

    The FairTax: A Rebuttal

    As you all know, I support the FairTax. This does not mean that I am not sensitive to well-thought-out criticism of the proposal. And there is always the danger that the politicians will institute a national retail sales-tax without repealing the current tax code.

    As the weeks go on, I suspect I will discuss this in more detail. But for now, please read Leaving Babylon's critique of the FairTax. He raises some very valid points that are worth considering.


    Blogger The Sovereign Editor said...

    This comment has been removed by a blog administrator.

    8/07/2005 9:59 AM  

    Blogger Aaron Singleton said...

    "If any federal tax exists, it must be revenue neutral. Anything else gives Congress the opportunity to engage in vote buying, and that is unacceptable."

    I think there is confusion here as to the definition of the words "revenue neutral." Revenue neutral simply means that the same amount of money is being collected by both systems of taxation. It means that the Fair Tax Act has neither a positive or negative effect on the total amount of money going to the federal government.

    Any tax reform plan that claims to be revenue neutral simply means that the reform will bring in the same amount of tax dollars as the old system. It does not refer to the "fairness" of the tax with regards to the individuals actually paying it. This is why I said we need people who are opposed to revenue neutral reform plans. We need to cut taxes, not keep them the same.


    8/07/2005 7:44 PM  

    Blogger The Sovereign Editor said...

    As you can see, it's possible for two people to read the same thing and come away with a different meaning. When I read your comment, Aaron, I was thinking from the "way of gathering taxes" perspective, not the "how much revenue the government gleans from taxes" perspective. Thanks for the clarification. I agree -- we need to see cuts in the monstrous size of government. There's really no reason it should be this big.

    8/07/2005 11:16 PM  

    Blogger The Sovereign Editor said...

    My response to Aaron Singleton of Leaving Babylon (this is the comment I removed from above, the one that Aaron responded to. There were formatting errors that I wanted to fix):

    AS: "The Fair Tax tries to maintain the progressive nature of the income tax. Rebates would be sent out according to how much money one makes."

    RoS: This is not true. The rebates offered by the FairTax would be revenue neutral. Everyone would get rebates based on the dollar amount of stuff the average household of their size needs to survive.

    AS: "The Fair Tax website makes the claim that 'Included in the Fair Tax plan is the repeal of the 16th Amendment to the Constitution.' This is not really true. The exact wording in the actual bill is 'Congress further finds that the 16th amendment to the United States Constitution should be repealed.'"

    RoS: My main problem with all this 'repeal of 16th Amendment' stuff is the idea that it is the 16th Amendment that makes the income tax possible. I have studied this issue and, despite my hatred for the income tax, I cannot, in all honesty, see what Congress can do under the 16th Amendment that it couldn't do without it. Congress had been trying to pass an income tax for some years before that amendment was ratified. The Supreme Court had invalidated each of their attempts as unconstitutional, but, if I remember correctly, the legal reasoning was poor -- the income tax was going to happen with or without the 16th Amendment (so it doesn't matter whether or not it was properly ratified, or whether or not we repeal it).

    AS: "What this implies is that we must trust congress. We must believe that once they have instituted an enormous national consumption tax, they will then keep their word and repeal what has been their favorite amendment for the past century."

    RoS: Indeed, I have heard some Congress-critters talking about adopting a consumption tax on top of the current income tax. In my opinion, this man is a criminal and should be arrested. It's amazing how the idea of cutting back on spending simply never occurs to these people. See: National Retail Sales Tax Gaining Notice, Favorable Opinion, But there's a Problem.

    AS: "This is the main (though not the only) reason I am against the Fair Tax Act. I don't trust a congressman further than I can throw him. In fact, the only politician I even remotely trust, congressmen Ron Paul of Texas, is not to be found among those supporting the bill."

    RoS: I did not know that . . . but it is a compelling reason to be suspicious.

    AS: "Experience tells us that allowing the government to institute any new form of taxation is a dangerous situation indeed and that the most likely outcome will be that we will end up being saddled with both the old and the new form of taxation."

    RoS: Giving a politician money and power is like giving car-keys and alcohol to a teenager.

    AS: "I would be very surprised if some pressing emergency or some urgent excuse weren't used to justify retaining the income tax for 'just a little longer.' That's all it would take and then we'd be stuck with both taxes indefinitely."

    RoS: Oh. . . you mean like withholding? During WWII, they said that withholding was necessary for the war effort (to get money faster) and would end after the war was over. That was half-a-century ago. If I remember correctly, the first income tax was also a "temporary" war measure back during the Great War.

    AS: "Personally, I am opposed to any type of 'tax reform' or 'tax replacement' that does not cut overall taxes resulting in lower government spending . . . The real problem is not how taxes are collected. The problem is the ludicrous amount of money that is being thrown down the government rat hole."

    RoS: Hear, hear!!

    AS: "With the income tax at least we know what to expect. It's been around a long time and we have been able to adapt to it."

    RoS: I must disagree with your sentiment here. I know what to expect with the income tax, that's why I want it gone. It's bad enough that I have to pay the stupid thing, it's unacceptable to have to go over all my finances once a year just so I can make sure that the government didn't steal enough from me. (I am, of course, assuming that the FairTax will work like they promise it will.)

    AS: "If there were a proposal to abolish all other forms of taxation immediately and replace them with a small, non-progressive sales tax that would drastically cut revenue and federal spending, I would be all for it."

    RoS: I agree. Lets add that to the FairTax bill.

    AS: "Also, any tax on goods and services, especially a heavy one like that proposed by the Fair Tax Act, is likely to lead to a large increase in the underground economy. There would be a substantial incentive to evade paying the tax by way of the black market."

    RoS: I have heard this argument before. What would this black market be in, exactly? New retail goods? And how would these black-marketeers get these new retail goods? Used goods aren't taxed. This black market wouldn't be any more efficient than a used goods market and who's going to do something illegal where there is a legal alternative that's just as good?

    AS: "Of course there would have to be an agency whose job was to enforce the tax and crack down on evaders. There is no guarantee that this bureaucracy would not be just as oppressive as the IRS. The Act itself includes the formation of a separate agency to 'administer' the tax. 'There shall be in the Department of the Treasury a Sales Tax Bureau to administer the national sales tax in those States where it is required pursuant to section 404, and to discharge other Federal duties and powers relating to the national sales tax (including those required by sections 402, 403, and 405). The Office of Revenue Allocation shall be within the Sales Tax Bureau.'"

    RoS: All this bureau would have to do is a yearly audit of businesses dealing in new retail goods. They could hire an accounting firm to do this (no Arthur Anderson comments, please). The companies' books will reveal whether or not the tax is being paid. If the books are false, well, there are already federal laws to punish such things.

    AS: "What we need are people with the courage to denounce 'revenue neutral' reform plans and who are willing to go to work on the welfare state with an axe."

    RoS: I partially agree with you here. We need to eliminate the welfare state. It is patently unconstitutional. However, If any federal tax exists, it must be revenue neutral. Anything else gives Congress the opportunity to engage in vote buying, and that is unacceptable.

    8/08/2005 12:30 AM  

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