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06/17/2006: ""Fair" Tax"

Last Tuesday, I went to a function at the Lincoln Restaurant on N. Lincoln in Chicago. We meet there every month. This topic was Neal Boortz's favorite tax plan, the Fair Tax.

I went in with an open mind. I left thinking that the arguments presented were short on style and substance.

The fair tax eliminates all taxes except for taxes new goods and services. It would have the government issue "prebates", checks dependent on family size to bring people up to the poverty level.

The fair tax web site lists as the main benefits:

The FairTax was created by first asking the American people what they wanted out of a tax system, and then having a team of respected economists design a tax system that met those demands. The FairTax replaces the income tax and all other federal taxes with a national consumption tax. The FairTax is levied only once, at the point of purchase on new goods and services. The simplicity of the FairTax frees Americans from our current overwhelming tax code and unshackles the U.S. economy.

The FairTax:

* Abolishes the IRS
* Closes all tax loopholes and brings fairness to taxation
* Maintains our current Social Security and Medicare benefits
* Brings transparency and accountability to tax policy
* Allows American products to compete fairly
* Reimburses the tax on purchases of basic necessities
* Enables retirees to keep their entire pension
* Enables workers to keep their entire paycheck

At the onset, this is unfair to those that save and invest. Such people basically produce today and consume tomorrow. If we tax producers today and consumers tomorrow, we double tax savers. The prebate cannot simultaneously subsidize the poor and reimburse savers.

Worse, though, will be the unintended consequences of tax avoidance. If one pays taxes on new goods but not used, people will game the system to avoid selling items as new.

  • Foreigners will start exporting used goods here. Cars will have been used for a few miles. TVs will have been watched for a few minutes. Clothes will have been worn once.
  • Craftsmen will use their items before selling them. Woodworkers will use bookshelves once before selling them. Carpenters, plumbers, and electricians will build homes and live there for a day before selling them.
  • Someone else noted that since items for businesses are not taxed, many items which are to be used at home will be declared for use at work. I'd add that businesses could buy new items and sell them used.

With all these loopholes, I do not see the fair tax as workable.

I also found the Fair Tax supporters' style wanting. Specifically, they insulted those that disagreed with them as ignorant or lazy.


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June 2006

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