End the IRS: Get the FairTax and Get Your Whole Paycheck
Mike Huckabee, “is the change agent the nation most needs.” From The Dallas Morning News endorsement from delegate rich Texas.
End the IRS:
FairTax An example of this change Huckabee advocates is ending, eliminating, closing down a government agency: the Internal Revenue Service. The beloved IRS.
Kyle Hamilton is blogging on the FairTax on mymanmitt, founded by my good friend Justin Hart. They are skeptical of real tax change. Our competitors supporting Romney do not believe that real change is possible, or maybe not necessary.
But the IRS supporters deserve a review of their criticisms of the Huckabee FairTax proposal.
So Your Business Blogger asked Sidney Bostian, one of my former CEOs to evaluate the FairTax proposal. He is a past president of the Heritage and Eisenhower Banks in Northern Virginia. He worked on Wall Street and taught economics at the University of Virginia. His comments are in bold following commentary from Kyle Hamilton.
First, several people made the point that Europe has a Value Added Tax (VAT) that is more than the 10% figure that I quoted. All of the research that I read made a distinction between the VAT and a national retail sales tax like the Fair Tax. This distinction is based on the mechanics of the tax. The value added tax looks at what a firm adds to the value of a product where a national sales tax is an excise tax levied at the point of sale. The end result looks similar because the VAT is passed on to the consumer. However, the VAT requires firms to report the value added at each stage of production. A national retail sales tax does not require any such reporting other than that the national rate has been applied. The figure I used looked just at those countries using a national retail sales tax and did not include those countries using a VAT.
All European Countries which have VAT, also have Income Tax. The Fair Tax (AKA NRST) does not require the business reporting infrastructure of the VAT since sales are taxed only at the retail (final sale) level.
Second, several readers expressed frustration at the current tax system and argued that we are essentially paying the same rate as what the Fair Tax would impose. That may be true, but I don’t understand how that merits scrapping the current system. If the Fair Tax does the exact same thing, why should switch?
The reason the tax rate for the Fair Tax approximates the average tax rate for the current system is that Lindner and his colleagues have structured their proposal to “revenue neutral” when compared to the current system. Obviously, reducing government spending can reduce the Fair Tax rate.
The tie goes toward stability, does it not? People have planned, not just in the short term, but in the long term for the tax benefits of the current system. Revolutionizing the way we tax would upset the expectations of a millions of Americans and businesses.
Since when has this consideration inhibited Congress in engineering major revisions of the Tax Code? Also, Fair Tax Advocates have outlined steps to address transition issues.
Thus, doing something that drastic requires not just generalized frustration, but serious injustice. Generally, I think that frustration with the current tax system has made people over-eager to do something else. I don’t deny that the current system has its flaws. Indeed, it should be flatter and simpler. However, taking the extreme position of overhauling what we have and disturbing the expectations of those who are paying taxes seems unwise to me.
Income taxes (even flat and simple) will never cause the “super rich” (eg Warren Buffet who always advocates for tax increases) to pay their fair share, because much of their income is recognized at their discretion. However, even when they recognize no income, they spend a lot of money and would then pay taxes.
Labor, income should not be taxed.
But the best part is getting your whole paycheck — no deductions.
Thank you (foot)notes:
mymanmitt is very gracious to include commenters who support the FairTax.