Tuesday, June 7, 2011

The Fair Tax

Yesterday, I discussed Herman Cain and how he is a lover of big government, even if he doesn't admit it.  He is also a supporter of the Fair Tax.  Today, I want to discuss the "fair tax" from a radical libertarian's perspective.

The fair tax is proposed legislation to eliminate income taxes, payroll taxes, corporate taxes, capital gains taxes, and estate taxes at the federal level.  It calls for the repeal of the 16th Amendment.  In place of all of these taxes, the fair tax would institute a national sales tax of 30%.  The fair tax proponents will say that the tax is only 23%, but they are calculating it as an inclusive tax.  For us people living in the real world, it is 30%.  If an item costs $100, you would pay an additional tax of $30.

This tax would be on all new goods and services with few exceptions.  Every family would get what is called a pre-bate check each month.  It would cover the cost of the tax of what is calculated to be essential needs.

The fair tax is appealing to many libertarians.  It has been pushed by former congressman John Linder and radio talk show host Neal Boortz.  The two wrote a book to promote the fair tax.  It was also supported by Mike Huckabee in the primaries for the last presidential election.

The biggest problem with the fair tax that I see is that it is revenue neutral.  In other words, it is set up for the government to collect the same amount of money that it collects now.  It would not touch the Federal Reserve.  It would not balance the budget.  It would not reduce government spending at all.

Filing income taxes is annoying.  It can eat up several hours of your time during tax time each year.  But even though that time spent is bad, the amount of money being taken from the American people is far worse.  The biggest issue with the income tax isn't that it takes a long time to complete a tax return each year.  The biggest issue is that it takes money out of our pocket and money out of the private sector.

As a libertarian, I don't want to see legislation that merely rearranges the tax code but does nothing to actually shrink government.  This is why it is easy for hacks like Herman Cain to advocate the Fair Tax.  He can push for tax reform and yet he doesn't have to name one program that he would cut because the purpose of the fair tax is not to cut government spending.  Why would I want to spend so much time and energy promoting something that will only save me a few hours each year and does nothing to save me any money?

I attended an event in which the speaker was explaining and advocating the fair tax.  When he was taking questions, I asked about someone who had to have heart surgery that might cost $100,000 (hypothetically).  I asked if the person would have to pay $30,000 in taxes on top of that.  His response was (and I'm paraphrasing) that he would expect for people to have health insurance.  I then said, "so could you say that fair tax supporters are in support of Obamacare because people should have to buy health insurance?"  I said I was only kidding, but I think my point was made.  The presenter was kind enough and he actually laughed at my comment.  I don't think the two women behind me were quite as amused.

I find that most strong advocates of the fair tax are not very good libertarians, let alone fiscal conservatives.  They do not really want to cut government significantly.  Otherwise they would not be spending so much time and energy promoting something that does nothing to cut government.  I also find that fair taxers push moderation.  When they get critiques, they say things like, "don't let the perfect be the enemy of the good."  The only problem is, the fair tax isn't good.

The fair tax will never pass.  If you can come up with enough support to repeal a constitutional amendment (the same as passing an amendment), then you have most of the country on your side.  If you can gain this much support, then you may as well just repeal it without replacing it with anything.

A libertarian position of dramatically reducing government has a much better chance of gaining widespread support.  The fair tax people are wasting their time.  It is a distraction.  Most of them are not supporters of a libertarian agenda.  Ron Paul has a better chance of being elected president than the fair tax has of passing.

There are many libertarians from the past who opposed the fair tax or something similar.  People like Murray Rothbard and Harry Browne not only did not support the fair tax, but they strongly opposed it.

If you are a libertarian, don't waste your time on something that has almost no chance of passing and that, even if passed, would do nothing to reduce the burden of government on society.  The fair tax people can continue to rearrange the chairs on the sinking ship.  I would rather fix the ship or abandon ship.  I would rather push for dramatic cuts in spending and regulations.

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