The flat tax takes a bite of your income as it is earned and the sales tax takes a bite of your income as it is spent.Posted on 01/31/2013 6:05:49 AM PST by Kaslin
I’m at Hillsdale College in Michigan for a conference on taxation. The event is called “The Federal Income Tax: A Centenary Consideration,” though I would have called it something like “100 Years of Misery from the IRS.”
I’m glad to be here, both because Hillsdale proudly refuses to take government money (which would mean being ensnared by government rules) and also because I’ve heard superb speeches by scholars such as Amity Shlaes (author of The Forgotten Man, as well as a new book on Calvin Coolidge that is now on my must-read list) and George Gilder (author of Wealth and Poverty, as well as the forthcoming Knowledge and Power).
My modest contribution was to present “The Case for the Flat Tax,” and I was matched up – at least indirectly, since there were several hours between our presentations – against former Congressman John Linder, who gave “The Case for the Fair Tax.”
I was very ecumenical in my remarks. I pointed out the flat tax and sales tax (and even, at least in theory, the value-added tax) all share very attractive features.
For all intents and purposes the flat tax and sales tax are different sides of the same coin. The only real difference is the collection point. The flat tax takes a bite of your income as it is earned and the sales tax takes a bite of your income as it is spent.
That being said, I do have a couple of qualms about the Fair Tax and other national sales tax plans.
First, I don’t trust politicians. I can envision the crowd in Washington adopting a national sales tax (or VAT) while promising to phase out the income tax over a couple of years. But I’m afraid they’ll discover some “temporary” emergency reason to keep the income tax, followed by another “short-term” excuse. And when the dust settles, we’ll be stuck with both an income tax and a sales tax.
As we know from the European VAT evidence, this is a recipe for even bigger government. That’s a big downside risk.
I explore my concerns in this video.
Flat Tax vs. National Sales Tax
To be sure, there are downside risks to the flat tax. It’s quite possible, after all, that we could get a flat tax and then degenerate back to something resembling the current system (though that’s still better than being France!).
My second qualm is political. The Fair Tax seems to attract very passionate supporters, which is admirable, but candidates in competitive states and districts are very vulnerable to attacks when they embrace the national sales tax.
On dozens of occasions over the past 15-plus years, I’ve had to explain to reporters that why anti-sales tax demagoguery is wrong.
So I hope it’s clear that I’m not opposed to the concept. Heck, I’ve testified before Congress about the benefits of a national sales tax and I’ve debated on C-Span about how the national sales tax is far better than the current system.
I would be delighted to have a national sales tax, but what I really want is a low-rate, non-discriminatory system that isn’t biased against saving and investment.
Actually, what I want is a very small federal government, which presumably could be financed without any broad-based tax, but that’s an issue for another day.
Returning to the issue of tax reform, there’s no significant economic difference between the flat tax and the sales tax. What we’re really debating is how to replace the squalid internal revenue code with something worthy of a great nation.
And if there are two paths to the same destination and one involves crossing an alligator-infested swamp and the other requires a stroll through a meadow filled with kittens and butterflies, I know which one I’m going to choose. Okay, a slight exaggeration, but I think you get my point.
The chief fear of those who are running for political office about the “fair tax” is concerns about the “poor” getting hit.
I want a flat tax, preferably somehow tied to consumption of government services, but at least on consumption instead of income, profit, investment, and other useful things. Not only is there no good defense of progressive taxation, there isn’t any reason rich people should pay more in an absolute sense, even if the rates are equal. Not unless you subscribe to the “from each according to his abities, to each according to their needs” philosophy.
I wrote an article on this subject that Liberty was kind enough to publish in their April 2003 issue. It’s entitled “Why Tax Reform Doesn’t Reform.” Here’s the link to the archive. http://libertyunbound.com/archivesearch?date_filter%5Bmin%5D%5Byear%5D=2001&date_filter%5Bmin%5D%5Bmonth%5D=1&date_filter%5Bmax%5D%5Byear%5D=2004&date_filter%5Bmax%5D%5Bmonth%5D=1&type=liberty_print&keys=Welber
That’s one reason democracy doesn’t work.
And that’s been addressed (in Boortz’ book) with the “prebate” for sales tax on what is considered the “base” level of spending on necessities.
Everyone gets the prebate so there’s no complexity added to the system.
We actually had a flat tax, or at least the best one that our congresscritters could come up with. It was called the Tax Reform Act of 1986. It was flat, but it was not simple.
That and they don’t want more money in the hands of upper middle class and the tier above that. It would give that class which is mostly conservative more power to control their destinies and influence government. The super rich (most politicians and behind the scene power brokers) don’t pay income taxes they pay 20% on capital gains. They are UNAFFECTED and DON’T CARE!
Taxes are slavery, cut and dried.
It is like the false dream of home ownership. Ask the families who have family farms/ranches that are paid off or the family that paid of their mortgage only to lose that asset because they couldn’t pay their property taxes.
The old truism that once people realize they can vote themselves entitlements from the tax revenue democracy fails.
I think the Fair tax is more saleable to an ignorant populace but personally prefer the simplicity of the flat tax. I would gleefully accept either as a replacement to our current system.
The chief fear of politicians regarding the fair tax is the loss of their power. Plus the fact that the tax rate would be in every consumer’s face each day shining the light of the true cost of government.
You wrote: “I think the Fair tax is more saleable to an ignorant populace but personally prefer the simplicity of the flat tax. I would gleefully accept either as a replacement to our current system.”
With the “Fair Tax” there is NO filing and NO IRS. With the Flat Tax, you file each year with supposedly a “post card” and the IRS remains intact.
Legislate and institute the “Fair Tax” and get rid of filing and the IRS in one fell swoop, I say.
The reform of ‘86 was both a miracle and revolutionary compared to the preceding decades. Goes to show you how evil our tax system is that it hardly ended up mattering. Not to say things couldn’t have been worse without it, but does anyone anywhere think the current system is good? I mean, at all?
The super rich are hit in other ways. Capital gains taxes only hit after our VAT tax, the corporate tax, takes a bite out of profit. Then they pay all sorts of luxury, sin, and property taxes. Finally, upon death their legacy is gutted. We could have am aristocracy in thus country, and one based less on crime and corruption as throughout history, if gubmint would keep its greasy paws off private fortunes.
Ever wonder why we have no independent families which don’t Peter out in a generation or so? Why we conspicuously lack high culture? Why our great artists, for instance, are left to suckle on the dry teat of European tradition? Because we went straight from barbarism to decadence. Because as soon as we cut our way into the continent and built a civilization gubmint ate the profits up and belched out the damn TVA, public education, a couple of crappy World Wars, and cities no decent person wants to step foot in.
I have no real arguments with the author. I think the flat tax is a more realistic goal, because it has some hope of being obtainable.
I prefer the fair tax/sales tax, because I do think it’s the most fair, but the author points that we could push for the fair tax and end up with both a sales tax and an income tax. That would be terrible.
So, I’ll settle for a flat tax. I do, however, want individuals/families to have the same right to exclude expenses from being considered income.
The prebate is an ENTITLEMENT check.
it degenerates into a “living prebate” where the entitlement check pays for what is, thanks to the help of lobbyists on K street, determined to be a necessity.
that is what makes the “fair tax” nothing more than yet another tax scam.
It also has the federal government intruding into mandatory registration of all buyers and sellers.
It is simple ecconomics, the retailers will just inflate prices to include the “pebate entitlement” and you have instant inflation. (see those credits for digital converter boxes of a few years ago)
a serious tax reform plan can not include more entitlement checks.
Great find, Kaslin! Thanks for posting!
OKEYDOKEY FairTaxers, here is your chance to promote the FairTax.
Have at it!
My contribution: The Flat tax is still an income tax, and it does not rid the USA of the evil Internal Revenue Code or the Internal Revenue Service. People with guns will still take your earnings under cover of “The Law.”
Why don’t we replace the income tax with a National Retail Sales Tax, abolish the IRS and restore FReedom to the American people?
Fellow FReepers, the issue is FReedom, and there can be no FReedom in the USA so long as we have an income tax and an IRS!
For more information about the FairTax and to find out how you can help us, go to http://www.fairtax.org.
What do you have to say in response to the hostility of the previous post to the “prebate”?
I think it’s from lack of understanding, and you can’t argue with that.
It made a lot of sense to me, as explained by the fairtax book.
Bingo, which means a Fair Tax will never be seriously considered by the political class. It will take a grass roots tidal wave effort to reset from an income tax to a consumption tax.
I'm going to disagree with you; the Fair Tax is worse than the Flat Tax -- a Flat Tax* does not have added complexity (just multiply by the tax-rate), the Fair Tax has that [IMO] stupid 'prebate' which makes it in effect another progressive tax, more dangerous than the Flat Tax* because the conditions of the prebate could be altered into something more progressive than our current bracketing system.
* - The Flat Tax should be simple: no exceptions, exemptions, credits, or withholdings (which are either theft, or forcing the employer to commit fraud). It should also apply only to individuals, this would destroy the entire issue of "tax-exempt" that 'non-profit' or 'religious' institutions/corporations currently are entangled with.
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