The more I hear about the “Fair Tax”, the more I lean towards the “Flat Tax”, but only if it is 10-15% max. All indications is that a Flat Tax would give our government more money than it could ever spend. If this is actually true, then why wouldn’t the government go to a Flat Tax? I think that the answer to this question is that it’s not about the money. It’s about taking more and more money away from the people to have more control over them. Keep the people broke and you have control.
The trouble with a “flat tax” is it still requires the politicians and federal bureaucrats to determine the definition of income (through the use of devices such as deductions, exemptions and credits). That is where most of the hanky panky in the IRS code lies. The activity of congress, staff, lobbyists, accounts, tax lawyers, corporate staff and government bureaucrats related to income tax is in large part non-productive non-value adding activity in relation to the overall economy. The cost of all this non-productive activity and the actual cost of income , social security and medicare (payroll) tax taken from individuals and corporate entities anyway involved in design, production, marketing, transportation and sale of goods and services (imputed costs) comprise a significant percentage of the cost of such goods and services. This cost easily equals or exceeds the cost of the proposed Fair (sales) Tax. Most retailers already collect some form of state and/or local sales tax so the mechanism and concept is already in use. Yes, oversight and compliance will be necessary. Yes, there will be black market sales, lying and cheating. However, it cannot be more than what takes place under the current income tax system, including your friends and neighbors who fail to report cash income and who cross the line in taking credits, deductions and exemptions to secure a discount from many of their ordinary living and leisure time expenditures. If you believe in the reality of market forces and such complex concepts and elasticity of supply and demand, you will understand that these imputed costs will be wrung out of the cost of goods and services immediately. There will be disruption for those engaged in the non-productive activity specified above, but these are smart people and they will find something productive to do which will actually add to the overall economy. Those most negatively affected by the Fair Tax will be the politicians and lobbyists. It will significantly diminish their power (a very good thing) and this fact will be one of the main causes of opposition. Another significant cause for opposition will be “fear of the unknown”. For the ordinary citizen, the economy and the government (not the politicians) the Fair Tax would be a very good thing.
Frankly, something that I would LOVE to see, and something that might really motivate a serious discussion on taxes is a bill that I call the "Financial Awareness Bill of 2007." A very simple bill, completely revenue neutral, it would simply outlaw federal tax withholding. Each employee would be personally responsible for writing a check once a quarter and mailing it in to the government. Given the fact that on April 15, if you ask anyone how much they paid in taxes, you'll get a response back from about 90% that "I'm getting a refund!" I wonder how long the tax system would stay intact at that point.
Mark