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By Jeff Emanuel Posted in Congress | Economy | Elections | FairTax | taxes — Comments (26) / Email this page » / Leave a comment »

That's the title of Chris Farris's outstanding piece on the "FairTax," posted over at my Georgia blogging home, Peach Pundit.

In his post (and please do read the whole thing), Farris addresses the publicize-at-all-costs tactics used by the program's supporters, and lays out the problems that can, and likely will, occur if and when the FairTax proposal leaves the Ivory Tower and becomes a seriously-debated policy prescription.

More below the fold.

He begins:

I’ve come to the conclusion that the FairTax no longer represents fundamental pro-growth tax reform.


It has taken me awhile to resolve my feelings for the FairTax. ...I think the bill would benefit our economy and country greatly. I think it might be one of the few ways out of this mess our congress critters have made with entitlements. I think a consumption tax is a better way to raise revenue than a tax on productivity. I think the FairTax would encourage savings and investment, bring foreign capital to our shores, strengthen the dollar and lower the price of oil.

BUT...

The problem is that the FairTax promoters and supporters jumped onto the Mike “I’m happy to raise taxes in anyway you want” Huckabee bandwagon. How is it that people who want to lower taxes and improve government would vote for someone who increased the tax burden of his state by 50%?

I began to realize that the FairTax promoters would use any means available to promote their idea and the FairTax supporters would buy it. The FairTax movement stopped being for better public policy and became a cult.

The Boortz/Linder plan is to promote the FairTax here, there and everywhere. FairTax! FairTax! FairTax! Rally the people with a voice so loud Congress will be unable to do anything about it.

The problem is voters are more interested in American Idol or the latest season of Lost than how the tax plan they advocated for is being amended by the sausage factory on Capitol Hill and K-Street. HR25 could call for the mass execution of puppies and the voters will be happy because the bill’s title is “FairTax”. That is the fundamental flaw of the FairTax right now - its promoters and supporters.

I've argued several times myself that the rabid FairTaxer crowd is largely indistinguishable from any other fringe group, be it the Paulistas, the deport-all-immigrants crowd, or any of a hundred other groups filled with wild-eyed, spamming crazies. To be sure, that doesn't describe everyone in any of these groups -- but it covers the most vocal, and therefore the ones who set the tone for how supporters of whatever that person or cause may be in the eyes of the impressionable public.

I also think that Farris is spot-on with his prediction of what would happen if the FairTax ever did make it off of the pages of Neal Boortz's book and out from under the stack of papers where John Linder's bill has been stuffed and forgotten about. He writes:

Bowing to pressure from constituents, congressional leaders will agree to hear the FairTax in the House Ways & Means Committee. First to testify will be the Home Builders Association. They’ll complain that in a housing slump no one will buy their product (new homes) if it has a 23% tax on it. Home builders are a powerful lobby, so new home sales will be exempted from the tax. Then the Representative from Detroit will hold a press-conference saying how the FairTax will hurt the American WorkerTM, because it will make automobiles cost 25% more. Labor Unions will protest and the US Automakers will be exempted. Even though most US cars are made in Mexico and foreign cars are made in the US foreign automakers will not be exempted. After all, if you exempt foreign car companies you’re sending tax breaks overseas and the populist voters won’t support that. A new bureaucracy will be created to determine how much of a car is made in the US and what percentage of the price should be taxed.

Soon every special interest with a lobbyist will start clamoring for an exemption. Teacher’s Unions will align with publishers to try and exempt books. Advocates for the poor will try and exempt personal computers - but only for personal use, and only if you make under $30,000/yr, etc. Food, Medicine, education, legal services will be exempted.


Next the budget wonks will complain that the Prebate will cost too much, and the class-warfare types on the left will call it a handout to the rich. So Congress will amend the plan once again. Soon only those making under $60,000 ($100,000 for married couples) will be eligible for the Prebatemeans the entire apparatus of the IRS will need to be kept around to verify income eligibility for the Prebate. W2s, 1040 forms and the lot.


By the time the bill makes it to a floor vote, the sales tax rate will be 45-60%, half the daily necessities will be exempted, and the revenue numbers will come in way too low. The President (doesn’t matter which one) will say that he’ll veto the bill unless the Congress can meet certain revenue figures. The conference committee will convene and they’ll decide to keep the current Income Tax, at a reduced rate of 25% on all incomes over $75,000 ($125,000 for married couples).


So thanks to the Cult of the FairTax, the IRS will still exist to tax the high-income earners and to verify eligibility for the Prebate. New bureaucracies will be created to set the tax rates on imported goods “to protect American manufacturing” and to keep the K-Street crowd employed. The provision that the bill doesn’t become effective till the 16th Amendment is repealed will be gone.


Twenty years from the enactment of the FairTax, the income cap will still be $75,000/$125,000 (thus affecting the lower middle class) and the marginal rate will have creeped back up to 39%. And we’ll have a 35% sales tax too.

Besides the excellent observation that, with all of those stipulations thrown in, the IRS will have to exist to monitor the tax's "fairness," the real kicker is in the last sentence of the above excerpt. First, the 16th Amendment will never be repealed -- period. Does anybody really think -- really -- that the Congress is will ever willingly divest itself of the ability to progressively tax income? The 16th Amendment is here to stay; that's simply a fact based (mired, if you will) in reality. Second, even if the 16th did go away -- and this is the kicker that so many on the FairTax bandwagon seem not to understand -- government would still have the Constitutional ability to tax income. The 16th Amendment did not grant that ability to the government; rather, it simply took that right and made it both explicit and Constitutionally "progressive."

The bottom line is, the income tax is never, ever going to go away. That's a sad but true fact.

Next, Farris addresses another myth that FairTaxers have (in good faith, no doubt) been propagating:

But, won’t competition force the price of goods to go down? Yes and no. Boortz likes to use the example of a loaf of bread dropping in price because the embedded income tax goes away. I don’t disagree. Bread is a commodity with lots of competition, low barriers of entry and a free market in which it trades. Bread prices will drop quickly. But what about a gallon of gas? Most of the cost of a gallon of gas isn’t the cost of manufacture, its the price we pay to third world despots. They don’t have an embedded cost of the income tax, so you won’t see the price of a gallon of gas dropping.


What about other things? Cable service? Cable and phone services are monopolies. The free market has been superseded by local and state governments. There is no free market forcing prices down in those industries. That $300 iPhone? Mostly made in China, the manufacturing costs won’t drop. And since the device has already been designed here in the US, the embedded costs of the income tax have already been spent. Apple will still need to recoup those costs.

The idea that increasing the cost of every good and service by 23%/30% (Farris doesn't get into that debate, as he says "23% or 30% doesn’t matter to my argument, so I’m just going to assume the figures quoted by Boortz, Linder and their supporters") will cause producers to lower prices in order to compete for business is a pipe dream at best; in reality, people will simply be paying that much more for their purchases, while they are still paying income tax.

He concludes:

Promoters and Supporters of the FairTax are selling a bill of goods regarding the price drop that the FairTax will never be able to provide.


...If the FairTax were to be enacted anytime soon, it will be a mutated abortion of what Linder and Boortz promise and it will be their fault for creating the Cult of the FairTax.

The FairTax is, quite simply, yet another one of those utopian proposals that offer sea-change "solutions" in response to the issues that we all face. In the past, these have featured slogans (such as "no ownership" and "from each according to his ability, to each according to his need") and catchy titles (like "Great Society" and "New Deal"). Not only are these programs entirely different in practice than they are on paper -- ask Stalin's 27 million dead Russians about that one, for starters -- but they always, always, always swell and bloat in the worst possible way when government has had a chance to toy and tinker with them for a period of time.

The income tax has already been enacted once -- temporarily, remember? -- in this nation's history. We appear to be about ninety years behind schedule at ending that temporary program, and half of government is still constantly fighting for its increase. Does anybody really think that something like the FairTax is not only going to be swept into law in its purest, most utopian form -- but also that it will remain as-envisioned once lawmakers have gotten some time to calculate how to take as much money as possible not only under it, but on top of it?

For those who really do believe in the purity of the proposal -- both on paper and in practice -- there is very little to be said. Reality intervenes for most at some point; it's just a question of when.