FAIR TAX?

After repeated urging, I finally read both of the Boortz / Linder Fair Tax books.

My impression?

It’s an intriguing idea, and in the second book, the authors have done a credible job answering the critics of the first. A couple of minor nits:

1) Given the necessity of the “prebate” to make the Fair Tax politically acceptable, the IRS isn’t going away. It’s a lovely idea, but it ain’t gonna happen. Downsize, maybe; go away, no way.

2) Nor are lobbyists going to go the way of the dinosaur. Strategy and focus will change, but for as long as there is a Federal government, there will be a K Street.

A more substantive concern is the calculation of the “embedded tax” – the sum of all taxes levied during the production cycle. No one with a lick of common sense doubts the existence of an embedded tax; ultimately the consumer pays every tax, no matter where it’s levied.

But here’s the rub.

Boortz and Linder estimate the embedded tax as 22% of any good sold; yet they need a 23% Fair Tax embedded in the sale price of all goods and services to bring the Federal government an equivalent amount of income as the current income/FICA/Medicare tax system.

A higher tax rate on a broader range of goods and services to generate equivalent income. That doesn’t pass my “reasonable-ness” test. I won’t argue that the numbers are wrong; I will argue that strict scrutiny is needed.

Boortz and Linder significantly underestimate the complexity of implementing the Fair Tax. A January 1, 20XX transition just ain’t gonna happen. Think of all the wailing and gnashing of teeth about the millennium bug – and that was a trivial problem compared to Fair Tax implementation. The authors have far too much confidence in capitalism – especially America’s constrained capitalism – to regulate wages and prices during the post-transition. That part of the Fair Tax proposal still needs serious thought.

All that said, however, I’d vote for the Fair Tax – and risk the transition chaos -- for one simple reason: a 23% tax bill, presented clearly on every single sales receipt in America, might be the enabler required to control government spending