Well...the FairTax is certainly not a VAT, so the rest of your argument falls short, I’m afraid.
One of the beautiful things about the FairTax is its mystic quality. Although I gave a link to it, because I mentioned VAT along with it, whatever I said is to be dismissed. FairTax, like VAT and like the Flat Tax (given its exemption of investment), is a consumption tax. This is all I intended to say. I like the idea of shifting tax from income to consumption.
The FairTax is distinctive for two reasons: (1) it is a point-of-sales sales tax. As proposed, the point-of-sales sales tax would be 30 percent of the purchase price, or 23 percent of the total price. No point-of-sales sales tax in the world is anywhere near as high. There are questions of tax evasion with such a high tax rate. On the other hand, many countries have VATs with rates similar to that in the Cruz plan. Compliance is high with a VAT since businesses deduct the VAT paid by their suppliers from their tax liability and, so, there’s a lot of cross-checking. A VAT is doable because it’s done. It’s not a mystical thing. It’s a real thing.
Then, to make the FairTax fair, there is the second distinctive feature: (2) Every family would receive a check from the government each month, equal to what an average family pays through the tax. For sure, compliance with this part of the plan would be 100 percent. It’s like paycheck protection. To quote Dire Straits, “Money for nothing.” I don’t think putting everybody on welfare is a good way to balance the budget.
Besides, we already have a money give-away program called the refundable Earned Income Tax Credit. Instead of freeing people from dependency, the EITC tends to trap people into a set of income security programs including Medicaid and Food Stamps, and often also including housing subsidies, heating and air conditioning assistance, child care and Pell Grants.
We need to strengthen the incentives of people to work and save, which both eliminating the tax on tips and eliminating the tax on Social Security benefits would do. Our challenge is to do this (strengthen the incentives to work and save) while still generating an enormous revenue. Our current tax code is amazingly complex (resulting in high administrative costs as well as high marginal tax rates) and, so, radical proposals such as the VAT, the FairTax and the Flat Tax are attractive. While attractive (because they shift taxation from income to consumption), there are concerns as to whether radical proposals would work in practice.