Fair Tax

Current Events Domestic United States Politics
1

Recently, I received a letter from my “community coordinator” for the new fair tax bill that has been proposed in congress. The letter asked that our local Objectivist Club for the University (I’m the vice-president) support the proposed legislation.

I turned him down saying that as Objectivists we believe that the only fair tax is a voluntary tax. However, we recognize the importance of a sales tax over an income tax. In addition, we realize that a sales tax is a stepping-stone toward a voluntary tax system. Therefore, although we cannot explicitly sanction the bill, we encourage you to continue working toward a voluntary tax system.

You can learn about the bill at http://www.fairtax.org. What do you think? Would you support the bill? Do you think that a sales tax is superior to an income tax in terms of fostering economic progress?

2

I turned him down saying that as Objectivists we believe that the only fair tax is a voluntary tax. However, we recognize the importance of a sales tax over an income tax. In addition, we realize that a sales tax is a stepping-stone toward a voluntary tax system. Therefore, although we cannot explicitly sanction the bill, we encourage you to continue working toward a voluntary tax system.

I can’t imagine why you wouldn’t support a step toward freedom. Do you really expect to unwind the welfare state in a single massive piece of legislation? You seem to understand that a national sales tax would be better than an income tax - and I agree - yet you refuse to support it because it isn’t ideal. Tell me, did you vote this last election?

3

I agree with Oakes. If it’s a positive step you should endorse it - as a step.

4

It is not a positive step. Introducing any new type of tax is an extremely short-sighted idea.

What’s even more short-sighted is the belief that making our tax-collection system simpler, more transparent, and more consistent couldn’t help our economy and/or lead to tax-cuts. A simpler system would be far less costly to operate, cheaper, easier, and less-intrusive to comply with, and could prevent politicians from catering to special interests through loopholes in a complex tax code. A more transparent system that eliminated hidden taxes would show exactly how much we really pay, encouraging citizens to push for tax-cuts. A more consistent system that taxed American-made and imported goods equally would allow US companies to be more competitive.

5

Here is one of the goals of the FairTax:

“It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.”

First of all, how am I to be sure that this will happen? If (this is a big IF) I have assumed that a natl. sales tax (NST) is preferable to an income tax (IT), how can I be certain that the preexisting IT will be completely swapped with the NST? More clearly, even if I start with the assumption that the NST will create a simpler, more transparent, and more consistent tax system, and then if I assume these three things are beneficial, there would have to be a detailed and consistently implemented plan to ensure that the NST completely replaced the IT.

Given the history of plans and their implementation in this government, especially those related to monetary and fiscal policy, I highly doubt this complete replacement would occur swiftly, if at all.

The first assumption seems plausible in theory, but there have been far too many tax reform proposals in the past that have had similar goals, but when implemented (on national or state levels) certainly have not achieved their intended goals.

The second assumption is also sketchy. We face a bureaucratic behemoth (our government) that requires taxed money as its lifesource. According to the website, the FairTax attempts to erase many of the inefficiencies present in the current tax system. Out of context, the three aforementioned attributes are generally good, but in the case of allowing a more easy, a more efficient, and a more powerful method of allowing this behemoth to continue to feed itself, these attributes are in direct conflict with what the desired goal is (replacing the behemoth itself).

While I understand completely why this proposal would receive praise, I feel it is made out of context, and that the new plan is similar to the results that the discovery of the Laffer curve had on economic policy: it superficially aids the lower taxes/no taxes agenda, but ultimately will have no consequence in affecting the existence of an involuntary tax structure. At the very worst, a plan veiled as a “FairTax” system only provides further support for the idea that *any* tax can be fair, and could ultimately destroy any plans for true “tax reform” (tax abolishment).

Edit: I use tax in the general coercive sense. When I say tax abolishment, I do not mean there is no means of supporting a rational government; I mean the abolition of coercive contribution system.

6

I should have explained the use of the term “short-sighted”. From my knowledge of history and of prevalent philosophical beliefs, I find it impossible to believe that a sales tax will completely substitute an income tax for more than a certain number of years (if that).

But it wasn’t the NST you were arguing against - your “short-sighted” comment was applied to anyone who sought to change the type of tax our government uses. My previous post was purely in opposition of that view - it should not be taken as commentary on the NST. Simplicity, transparency, and consistency are general attributes I want in a tax system, whether it is NST or something else.

In fact, in addition to your fear that the income tax will never actually be dropped, I’ve been having my own doubts recently about the NST. The questions I would like Delay and DeMint to answer are: (1) Will the NST raise enough? (2) Even though people will see the tax on their receipts when they walk out of the store, is it really transparent if they don’t know the total amount they are taxed each year? (3) Can you prove that we will lose less money through the NST’s black market of un-taxed goods than we do today through income tax evasion? (DeMint made that assertion here)

7

I do not want to misinterpret you, so let me ask this as a question: do you want a tax system that is extremely difficult to evade?

I advocate, as a step toward freedom, simplifying and improving our current coercive tax system. As long as political reality prevents me from advocating a completely voluntary system, it must be completely _in_voluntary. Do you really suggest I promote a system that is intentionally easy to evade? I’ll give that bill a good three days before it becomes political mincemeat.

8

I’m with Oakes on this one. To give an example of our line of reasoning, Ayn Rand advocated school vouchers. Obviously she wasn’t for public schools, but she felt that it would be a step towards privatization.

when It comes to politics, I take a very Larry Eldar line of thinking. He has his 4 step programs which would take the program from it’s current position to one of full privatization.

ya gotta take baby steps. Especially with the large saturation of Kantian style thinking in our society.

9

Here is one of the goals of the FairTax:

“It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.”

First of all, how am I to be sure that this will happen?  If (this is a big IF) I have assumed that a natl. sales tax (NST) is preferable to an income tax (IT), how can I be certain that the preexisting IT will be completely swapped with the NST?  More clearly, even if I start with the assumption that the NST will create a simpler, more transparent, and more consistent tax system, and then if I assume these three things are beneficial, there would have to be a detailed and consistently implemented plan to ensure that the NST completely replaced the IT.

Obviously with any plan, the more detailed it is and more constitently it is implemented, the better the plan will work as designed. It seems that you are arguing here not against the Fair Tax plan itself, but whether the government will implement it as it is intended.

Given the history of plans and their implementation in this government, especially those related to monetary and fiscal policy, I highly doubt this complete replacement would occur swiftly, if at all.

The first assumption seems plausible in theory, but there have been far too many tax reform proposals in the past that have had similar goals, but when implemented (on national or state levels) certainly have not achieved their intended goals.

I share your concern given the federal governments track record, but that is a separate issue entirely. When considering a tax reform, we have to assume that it will be implemented as intended. If we don’t, what is the point in considering any type of tax reform at all?

The second assumption is also sketchy.  We face a bureaucratic behemoth (our government) that requires taxed money as its lifesource.  According to the website, the FairTax attempts to erase many of the inefficiencies present in the current tax system.  Out of context, the three aforementioned attributes are generally good, but in the case of allowing a more easy, a more efficient, and a more powerful method of allowing this behemoth to continue to feed itself, these attributes are in direct conflict with what the desired goal is (replacing the behemoth itself).

While I understand completely why this proposal would receive praise, I feel it is made out of context, and that the new plan is similar to the results that the discovery of the Laffer curve had on economic policy:  it superficially aids the lower taxes/no taxes agenda, but ultimately will have no consequence in affecting the existence of an involuntary tax structure.  At the very worst, a plan veiled as a “FairTax” system only provides further support for the idea that *any* tax can be fair, and could ultimately destroy any plans for true “tax reform” (tax abolishment).

This goes back to Oakes argument between a more fair tax system versus a more transparent tax system. Looking at the big picture, the war can be fought on both fronts. A completely voluntary tax sytem can be continued to be advocated, while also working to make the current system of extortion less of a burden.

I am not certain that the war against involuntary taxes will ever be won. But winning smaller battles that reduce the overall tax burden are still better than nothing at all, and certainly better than a move towards higher taxes and larger government spending (which is what is being advocated by a larger number of the population, even if they don’t realize it).

10

nemethnm,

I turned him down saying that as Objectivists we believe that the only fair tax is a voluntary tax.

How is a consumption tax compulsary? Unlike the income tax, which is not only unconstitutional it is the initiation of force and ‘legalized’ theft, a sales tax is wholly voluntary.

ramKatori,

At the end, we will therefore be left with both a Federal Income tax and a Federal Sales tax.

Not true. Statists and all other worshipers of big government try to use this argument, and it is patently wrong. The Fair Tax Initiative repeals the 16th Ammendment, eliminating both the IRS and the income tax. Don’t fall for their line and scare tactics.

11

_ I’m going to post an article that was written by a friend of mine who happens to be the owner of the board I am an administrator of. He is an old-time conservative Southern gentleman, a published author, a newspaper commentator, liberal hater, and one who detests big govenrment. He also is a retired CEO of a multinational company and one of the wisest people that I know. He is a big proponent of the Fair Tax Initiative. Mr. Fallin has given me permission to post his written articles anywhere I deem appropriate. With the intelligence of the people here, this should make for a good and productive discussion.-EW _

NATIONAL SALES TAX PROPOSAL IN LAYMAN’S LANGUAGE

WILLIAM PENN FALLIN

EDITORIAL COLUMNIST

COFFEE COUNTY NEWS

1-27-03

NATIONAL SALES TAX UPDATE

Congressman John Linder ® Ga. has again introduced his bill to eliminate the 16th Amendment which authorized the income tax. And with it, eliminate ALL INCOME TAXES IN EVERY PHASE OF OUR LIVES. Here is a brief synopsis of his proposal which is receiving bi-partisan support in Congress.

For full details go online to http://www.FairTax.org

The FairTax is a consumption tax designed to replace the entire federal income tax system, including personal, payroll, corporate, self-employment, capital gains, gift, and inheritance taxes. The FairTax allows Americans to keep 100% of their paychecks, dramatically reduce basic retail prices, and fully fund the Federal government, including Social Security and Medicare.

With the FairTax, you will take home 100% of your paycheck. No income taxes or payroll taxes will be withheld from your paycheck, pension, or Social Security check.

Did you know that hidden income taxes (corporate etc.) currently make up 20% to 30% of retail prices? It’s true. According to Dr. Dale Jorgenson of Harvard, hidden income taxes are passed on to the consumer in the form of higher prices, from 20% to 30% higher than they would otherwise be for everything you buy. Therefore, when the FairTax Act abolishes the federal income tax, prices will drop 20% to 30%. The proposed FairTax rate is 23%.

Instead of paying 15.3% of your paycheck in payroll taxes, plus an average of 28% of your paycheck in federal income tax, for a total of about 43% of your paycheck going to the federal government, you pay only a 23% consumption tax each time you purchase a new product or service for your own personal consumption.

At this 23% rate, the FairTax will pay for all current government operations, including Social Security and Medicare. With the FairTax, if you choose to buy any new product or service for yourself, a consumption tax of 23% will be added to the price. If you choose to buy a used car, resale home or used anything you do not pay the FairTax. Business owners who buy something for strictly business purposes (not personal consumption), will pay no consumption tax.

Perhaps most importantly, to ensure that no American will pay tax on necessities, the FairTax plan provides a monthly rebate for every registered household to cover the 23% consumption tax spent on necessities up to the federal poverty level. This is how the FairTax completely untaxes the poor, and lowers the tax burden on everyone else.

This system partially works by eliminating legal loopholes and it collects from those “illegals” who currently OPERATE “OFF THE BOOKS.” When tax cheats, thugs, gangsters and common thieves use any of their ill gotten gains and buy anything new they will pay 23% taxes like everyone else. Income tax cheating will be a relic of the past. Everyone will pay the 23% tax whenever they buy anything new. Like current state sales taxes it’s extremely difficult to beat. That factor alone will produce tens of billions in new revenues now being lost.

12

I have thought about each of your comments and I have reached a conclusion.

A sales tax as a substitute for an income tax will receive my support if congress proposes it in the right context. First, congress should present the bill in the light that it is indeed a temporary measure to move away from taxation in general and toward a voluntary donation of funds. Furthermore, congress should propose the tax in addition to other legislation that would prove that freedom and the establishment of Capitalism is indeed the purpose of congress. An example of this other legislation is the removal of the welfare system (Social Security, Welfare, Medicare, etc.).

The current proposed legislation is not an incidence of a situation as I described above. At the official fair tax website, the official purpose stated is that the bill’s purpose is only to simplify the current tax system. The website gives specific arguments to show that the new tax system would bring in a comparable amount of yearly revenue for the government. Reducing the amount of taxes collected is not a goal of the proposed tax. In addition, there is no mention of the temporary nature of the tax. If the tax were a legitimate step toward freedom then the temporary status of the tax would be explicit. This newly proposed tax is to simplify the collection of taxes and not a step toward freedom. For these reasons, I cannot support the currently proposed sales tax.

13

How is a consumption tax compulsary? Unlike the income tax, which is not only unconstitutional it is the initiation of force and ‘legalized’ theft, a sales tax is wholly voluntary.

A sales tax is a compulsory tax. We live in a division of labor society. This means that each person produces, or helps to produce, just one good or at most only a few goods and relies on the production of others for the vast majority of his needs. This means that in order to survive a person in a division of labor of society needs to trade with others. In a division of labor society, the institution of money develops to facilitate trade of goods. This means that in a division of labor society, such as the one that we have, one must trade money with others for the goods he wants in order to survive. This is why, unless one were to lie about the purchases he made, a sales tax is a compulsory tax. The only other choice to paying the tax is to starve to death naked in the street.

The example of a man who lives on a self-sufficient farm is not counter to my claim. Such a man and any persons with him have removed themselves from the division of labor and are outside of the realm of Economic science, which is the study of the production of wealth within a division of labor society.

14

You allude to several important factors, to which I wholeheartedly agree. It is imperative that the Federal Government greatly reduces spending. Far and away it spends too much money on frivilous, unconstitutional, and unmandated programs, agencies, and entitlements. The federal government also needs to be reduced in size and scope, back down to the levels set forth in 1787 by our Founding Fathers. In actuality, simple excise taxes should be sufficient to fund a constitutionally limited minarchist government.

15

nemethnm,

How is a consumption tax compulsary? Unlike the income tax, which is not only unconstitutional it is the initiation of force and ‘legalized’ theft, a sales tax is wholly voluntary.

The compulsion of a consumption tax is that I am forbidden from consuming (trading actually) without paying this tax.

Describing this tax as voluntary is like saying a tax on breathing is voluntary because nothing forces me to breath.

16

Edward J Williamson:

What is a minarchist government, and why should it be formed if it requires sales taxes?

17

What is a minarchist government, and why should it be formed if it requires sales taxes?

Yes, please tell us more about Libertarianism.

18

Edward J Williamson:

What is a minarchist government, and why should it be formed if it requires sales taxes?

Actually it does not require a sales tax at all. The Fair Tax Initiative is much preferable to any income tax. The point is that the Income Tax and the 16th Ammendment is what makes big intrusive government possible in the first place. Simple excise taxes, which is what we had in the 18th century, would all but cover the costs of a constitutionally limited central government. That would be preferable to anything else, other than no taxes - which only would happen in dream land.

As to a minarchist government:

A minarchy is the ideal of a government that is limited in scope and size. Our plan of government as laid out by the Founding Fathers in 1787 is an example of minarchist government.

A minarchy is a small formal government and that the scope of such a government should be limited to defending and not limiting or defining rights. Minarchists believe in natural law, and natural rights and that all government is limited to preserving these rights.

Minarchist government upholds that the proper function of government includes providing a common defense, a judiciary, a legislature, and a means for people to settle disputes peacefully which can’t be done privately in an equitable fashion. In short, government should not do anything that can be better provided by private enterprise.

19

A minarchy is the ideal of a government that is limited in scope and size […]

Why do you partially define this type of government ( mini archy) based on its size?

Is the size of a government its essential characteristic?

Or is something else, such as the principles it is founded and operated on, the essential characteristic of a government? (This is a rhetorical question).

Your definition seems to be a combination of the two—both essential and non-essential characteristics.

20

A consumption tax is compulsion on producers, who are forced to charge higher prices in selling goods and who are forced to pay the price excess to the government. It is compulsion on consumers, who are forced to pay higher prices for the goods they need to live progressively better lives by means of trade.

A sales tax is compatible with limited form of statism. It is incompatible with socialism, the logical conclusion of statism. A progressive income tax, even an income tax at all, is incompatible with limitations on statism.

“Common sense” - severe limitations on statism - is not the enemy of reason or of Objectivism. Statism is its enemy. Common sense simply hasn’t looked too deeply into the issues, but it is aware of the threat of government and the value of liberty. Statism has delved deeply into those issues, and is philosophically aware of the threat and the value.

A shift in focus from the unshackling of socialism to the common-sense imposition of limitations on statism is in order. It is the first step: it is consistent with a rational sense of life, though not in full accord with rational principles. It is not a final step. But it is in order.