Lies and deceptions about the Fair Tax...

I found this column on Lew Rockwell today that confronts the Fair Tax plan as being pushed in the Congress right now. The author raises several valid points, yet in typical fashion, he overplays his hand and makes many statements which are outright falsehoods.

I don't mean to come off as a Boortz apologist, as I disagree with him on a variety of issues, however, I do mean to come off as someone who would prefer to have a truthful discussion of ideas void of personal slander or misdirection.

Right off the bat, the author makes this false claim:

Former attorney Boortz is the well-known Atlanta-based "libertarian" talk show host who, like Rush Limbaugh and Sean Hannity, spends an inordinate amount of time on the evils of liberalism, the Left, and the Democratic Party while turning a blind eye to big government Republicans and supporting Bush's "War on Terror." Boortz has drawn fire from Christians for his support of abortion and gay rights.

Boortz does not 'turn a blind eye' to the big government republicans, nor does he 'support abortion'. He constantly rails against the out of control fiscal policies of the Bush administration, and he merely wishes that abortion would be an issue kept beyond the perview of governmental regulation. Just as I don't 'support' heroin use, I don't think it should be a criminal offense, either.

Nonetheless, the focus of the Fair Tax concept should not be its supporters, but the idea itself. Since the IRS is no friend of the taxpayer, except perhaps the super wealthy, most Americans who pay federal taxes would welcome the abolition of the IRS and the termination of its armies of auditors.

Although the FairTax Plan would eliminate Social Security and Medicare taxes, it would not eliminate the programs.

The plan would be dead on arrival were it to propose the elimination of the IRS, Social Security, and Medicare all in one shot. While I would gladly welcome such a measure, most Americans have gone much too far down the socialist road to accept such an abrupt about face. Trying to reverse the growth of government will only be done in stages. If asked point blank if he would prefer the SS & Medicare boondoggles be eliminated, I have no doubt that Boortz would concur. Concluding that a plan to eliminate the IRS and federal income tax implies support for other socialist wealth distribution schemes is faulty logic.

I believe that the Fair Tax plan would be an eye-opening experience for a great number of Americans, who after having seen the size and breadth of taxation being levied upon them would much more readily support the sorts of dramatic overhauls of the American welfare state that Mr. Vance clearly advocates.

The FairTax is designed to simplify the tax code, increase compliance, and make the government more efficient at collecting taxes. It is not about reducing the overall tax burden one cent. The book should therefore be discarded upon reading this line on page two: "This book isn't about saving us a penny in taxes." Boortz has the proverbial cart before the horse. He wants to fight for "a simpler, clearer way to fund our federal government" before he fights for "tax cuts and lower government."

Several issues are left out of this simple analysis. First, greater efficiency in tax collection implies lower costs. Therefore, almost the entire budget of the IRS could be reallocated to other areas or returned to the People. Second, the gross revenue raised by the Fair Tax would supposedly remain neutral, however, each taxpayer would see his percentage reduced because of the addition of new taxpayers such as prostitutes, drug dealers, those who work 'under the table' and the illegal aliens who work with fraudulent or non-existent identities. Currently these people do not pay federal taxes because there is no record of their incomes.

Not to mention, notice how Boortz now wants to fight for simpler taxation BEFORE cutting taxes and the size of government? Previously, the author implied that Boortz had no interest in addressing the size or scope of government.

So, instead of calling for the elimination of the various federal programs that feed off tax dollars, Boortz wants to merely change the way they are funded.

Why would anyone want to make the government more efficient at collecting taxes?

Because efficiency implies lower costs, and the money not spent on arcane bureaucratic tax collection methods could be returned to the people or used for other legitimate governmental purposes.

For even though the purpose of the "prebate" is to cover "the basic necessities of life," Boortz acknowledges that there will be "money left over" for the poor "to invest in their own futures." The trouble with this is that the "money left over" belongs to someone else—"the rich" who will pay most of the taxes just like they do now.

If there is 'money left over', then the solution is a simple one. That is to lower the poverty line from which the prebates are calculated. Nobody can deny that there is a progressive nature to a tax system in which some people pay nothing, but again, solving the welfare state mentality problem in America is a process which must be done incrementally. While I don't believe that people who pay no taxes should vote, they currently enjoy the privelege, and as such it is unreasonable to expect them to voluntarily vote themselves an increase in their own tax liability.

But not only does this ignore the basic laws of supply and demand, it is based on the fallacy that the costs of inputs in the production of a good determine the price of the output they produce.

I don't pretend to be an economist, so I'll tread lightly here, but it seems to me that the costs of inputs have at least a significant contribution to the final price of the product. After all, charging less than a product costs to make won't work, therefore one must charge at least an equal amount. Therefore, the lower the costs to produce a good, the lower the cost MUST BE. That means that if a good costs $10 to make, it must be sold for at least $10, however if it only costs $5 to make, it must only be sold for $5. The good produced for $5 could be sold for $10, but I trust market forces to keep the prices where they ought to be. However, there can be no logical dispute that the prices of a good COULD be lower than they are if the costs of making that good are reduced.

Lie #1: taxes would be voluntary under the FairTax.

One can buy a used car, a used house, and used clothes, but one cannot purchase used food.

No, one cannot buy used food, but one does not pay taxes on the amount of food necessary to survive. That is precisely the point of the prebate, to make a certain amount of utilities, clothes, food, etc. tax-exempt. Is this progressive in nature? Yes. However, the purchase of goods over and above those which qualify for the Fair Tax really are very close to voluntary.

Lie #2:the FairTax rate would be 23 percent.

The inclusive/exclusive argument is legitimate, but suggesting that Americans have any idea how much of their gross income goes into taxes today is totally irresponsible. The truth is that taxes are always going to be 'hidden' in some way, but with the Fair Tax the result is the same. A product is marked $10 on the shelf, and at the register you give the cashier $10 for it. The individual consumer may not know or care what percentage of that $10 goes to the store and what percentage goes to the government, but it doesn't matter. All the consumer must consider is whether or not he is willing to trade $10 for the product.

Lie #3: the FairTax would abolish the IRS.

Whatever replaces the IRS under the Fair Tax would not resemble one another much at all. Any tax collection scheme must necessarily have collectors who collect the tax, and it will almost necessarily have auditors to determine who didn't pay the amount levied against him. The only alternative is to have NO taxation whatsoever, which would either rely on voluntary funding of government, or no government. While I am no fan of the concept of government, there are a small number of functions that are best performed by a governing body, and in order to do so, some funds are needed. In the end, I'd rather take my chances on a system which oversees States or businesses as whole entities, as would be done under the Fair Tax plan, instead of the IRS model where each individual person is subject to audit and/or imprisonment on the whim of a government agent. Ideally, everyone would pay the amount he owes according to a perfectly equal system, but we're nowhere near that and pretending we are is not beneficial to actually getting to that point.

Problem #3: The FairTax is an income redistribution scheme.

Absolutely right. However, I believe that one of the real benefits to the Fair Tax plan would be to open the eyes of Americans currently oblivious to the enormous amounts of capital being taken out of the marketplace by governments. Again, the Fair Tax plan can be viewed as the first step in a long process of reversing the welfare mentality currently infecting the minds of most Americans.

Problem #4: The FairTax creates new tax collectors.

This argument is a non-starter. Doctors and garbage collectors already collect taxes. They collect the Social Security and Medicare taxes withheld from their employees, as well as every other tax levied against a business. Is the author contending that doctors or lawyers today don't spend time and resources complying with tax laws? Surely under the Fair Tax plan, the time and energy spent on compliance would be reduced dramatically from where it is now.

Will a teenage babysitter be required to collect the FairTax from her neighbors?

Yes, just as she is currently liable for paying tax on her income under today's system. Just as no system is perfect, no collection method will ever be perfect. People have been cheating the tax collector since the first tax was levied, and there always will be tax dodgers. Permitting perfection to become the enemy of good in this case serves no one.

Problem #5:The FairTax creates new taxes.

Yes, however market forces would drive down the prices of goods or services, so again the net effect seems to be relatively minor, especially when combined with the huge increase workers would see in their income. Ultimately, people's income will go up dramatically while the prices they pay would only rise slightly, if at all.

Problem #6: The FairTax creates new taxpayers.

Here the author tries to have it both ways. Earlier, he lamented that the Fair Tax is progressive in that many people and entities enjoy the benefits of government without bearing a share of the burden. Now, the author argues the opposite. Frankly, I'd prefer to spread the tax paying burden across as many individuals as possible, rather than concentrating it to only a select few. Perhaps if the non-profits and churches were forced to pay taxes, they would fuel the movement to limit government and to abolish its agencies which serve no legitimate purpose. Again, the end result seems to be a positive one.

Problem #7: The FairTax makes it easier for the federal government to raise taxes.

Of course it does, however if the rate is kept static across all class lines, then a politician who wishes to raise revenue by raising taxes must justify doing so to the poor and the wealthy alike. Today, the politicians play the class warfare games, usually resulting in the wealthier people losing because they are fewer in number. Having one single rate for everyone would eliminate the opportunity for politicians to spread lies and deceptions as well as making revenue receipts contingent on American consumerism, which would be a self-fulfilling prophecy. The better the economy works, the more consumers spend, the more the government raises. Making the government the last to get a cut of the economic pie instead of the first can only be a postive move.

Problem #8: The FairTax makes it easier for state governments to raise taxes.

As if raising taxes today is somehow difficult?

Problem #11: The FairTax has great potential for fraud.

As does any other tax system, due to the natural inclination of people to avoid paying taxes whenever possible.

Since every head of household would have one of these cards, there would be a great chance of criminals preying on people for their cards. There is also the possibility of counterfeiting, resulting in massive theft from the taxpayers.

Here, the author makes a point with no evidence whatsoever to back up the claim. Criminals also prey on people for their credit and debit cards issued by private banks, yet we've managed to survive the onslaught of the predators. While no system is perfect, I suspect that government issued debit cards would be at least as difficult to counterfeit as other non-currency methods of payment, so it's a moot point.

Problem #12:The FairTax has the potential to turn thousands of law-abiding Americans into criminals.

The IRS already does that. Virtually everyone submits an incomplete or fraudulent W-2 statement annually, not to mention, we are currently required to sign the form attesting to its accuracy, subject to a felony. Therefore, under the current system, most Americans are felons for no reason other than the complexity of the law they are supposed to follow. I cannot believe that the Fair Tax plan wouldn't improve this dramatically, though no plan will ever eliminate all tax cheats.

Problem #13: The FairTax does not repeal the Sixteenth Amendment.

The author has finally hit on the single most important issue revolving around the Fair Tax plan. I would much prefer to see the 16th Amendment repealed, or declared rightly to never have been legally passed in the first place, before any attempt is made to alter or abolish the IRS, because otherwise we'll certainly end up with a federal sales tax AND a federal income tax.

Problem #16: The FairTax doesn't even begin to address the root of the problem.

I disagree. I think the Fair Tax begins to turn the tide around, and bring to the forefront of American debate the proper role of government, and the enormous amount of money it collects today from the marketplace. Trying to go from where we are today, with most Americans either embracing the welfare state or having no idea how large the welfare state really is, will never work. The most important step is to make government revenue contingent upon the financial well-being of Americans and our markets, and by giving the federal government the last bite of the apple via the Fair Tax, rather than the first through payroll withholding taxes, a tremendous stride forward will have been made.

Problem #17: The FairTax makes welfare universal. Millions of people who never took a dime from other taxpayers in the form of food stamps, SSI, AFDC, Medicaid, WIC, or housing assistance will now be on the federal dole via the prebate.

Receiving a portion of taxes paid back from the government constitutes 'being on the dole' no more than does an employee receiving a refund in April after filing a tax return which shows that more was collected than was due. The bottom line is that the cash register at the stores which collect the taxes under the Fair Tax has no idea how much that customer owes or has paid. Thus, all purchases are taxed in the interest of simplicity, and then each person is refunded an amount for the taxes he paid or will pay for things which are not intended to be taxed in the first place.

Boortz does refer to Frank Chodorov (1887–1966), reminding us that he "once observed that, by enacting the income tax, the American government was proclaiming that all wealth belonged to the government, and whatever wealth the government did not seize from the person who created it should be looked on as a concession—a gift from the government." But Boortz doesn't quote Chodorov, and he gives no source that he is referencing. He subtly seems to imply that Chodorov was opposed to the income tax because it was an income tax and that, therefore, he might be inclined to support the FairTax if he were alive. But this couldn't possibly be true because Chodorov considered taxation itself to be robbery .

Unless and until a model of government is proposed which needs no revenue to operate, eliminating all taxes means eliminating government. I believe that a government which protects the rights of individuals is both beneficial and necessary, and therefore I am willing to assume a fraction of the burden needed to sustain a very limited few governmental roles, primarily the maintenance of law and order through police, courts, and prisons.

In the end, the Fair Tax plan leaves much to be desired, and the fundamental principle of the author of this article is correct that the Fair Tax plan does not directly attack the welfare mentality of Americans or our government, but it does represent a dramatic improvement over the system we currently have in place.

Were the author to propose a clear alternative other than to merely proclaim that America's welfare mentality is the root propblem, I would be inclined to consider it. However, declaring a problem and illustrating a set of preferred circumstances means nothing without a way to get from where we are now to where some of us are trying to go (low taxes, limited government,...).

Simply saying 'the problem of the ever-increasing, ever-intruding, ever-destroying welfare/warfare state ' exists does nothing to reverse the trend towards bigger and more intrusive government. Do you have a better idea than the one outlined by the Fair Tax book?
Fair Tax