“Fair Tax” or False Promise?

After the recent publication of my column on the GOP tax reform plan that would eliminate the federal tax deductions on home mortgage and interest payments (Republicans Shooting Themselves in the Foot, June 29th), I was discussing tax reform with some friends when a couple of them proposed instating the Fair Tax program, which would allegedly eliminate the IRS and simplify our tax code.

I admitted I didn’t know much about the plan, and after the discussion decided to educate myself. So I went to the website of the group promoting this plan (https://fairtax.org/) to learn more. But what I found out is that the Fair Tax is neither “fair”, nor even particularly sane. I’m not buying into this at all.

First of all, the federal mortgage and property tax deductions will be gone, once again, and I am dead set against that for the reasons I stated in my previous column. It would devastate the real estate market, drive down home values, and essentially steal people’s home equity, which is no different from robbing their savings account in a bank. In fact, it compounds the problem, as we’ll see in a moment.

Secondly, you’re essentially talking about a VAT, a “value added tax”, and that’s a recipe for disaster. I’ve seen it in operation, in Vancouver BC when I visited there about 15 years ago. They had a 14% VAT. It jacked up the price of goods and services immensely.

In the case of the proposed Fair Tax, the rate is 23%. Now, add that to any state taxes a person pays, and the tax burden’s even worse than now. How’d you like to add 23% in tax to the price of a new car? Or a new house, as I mentioned a moment ago? Here in LA, our local sales tax is about 11%. Add a VAT of 23%, and anything we buy (with certain limited exceptions) would have 34% added to the cost in sales taxes… PLUS we’d still face state income and property taxes, and any other taxes and “fees” imposed from the state level on down. It’s absolutely absurd.

Compound that with the fact that there’d be nothing to prevent that VAT from being jacked up in the future, and you can bet your last dollar — which would very soon be leaving your wallet under that system — that the VAT would continue to be jacked up as time went on.

On top of all of that, you just KNOW that in order for such a program to actually pass, there’d be so many “exemptions” and special treatments for “the poor” carved into it that not only would it NOT do anything to ease the burden on the current taxpayers, it would actually make it worse.

As to the amusing claim that the Fair Tax would “eliminate the IRS”, how would it do that? There would still be a need for a bureaucracy to administer and enforce the new tax laws, as well as to receive, process and distribute the funds. So, maybe, the actual name “Internal Revenue Service” would be replaced by something like “Fair Tax Administration Agency”, but it would still be the same animal with a different moniker, that’s all.

Which brings us to the root of the issue. The problem in this country isn’t the tax system. It’s spending. Ever since FDR we’ve been trying to create a bastardized mix of socialism and free-market liberty in this country, and that’s like trying to McGyver a car out of two bicycle wheels and an empty tuna can. It ain’t gonna work.

I have absolutely ZERO interest in any “tax reform” plan until I see some serious actual spending cuts. And I don’t mean cuts in the rate of spending increases, which is what that term actually means today.

I mean an actual decrease in the dollars shoveled out the door.

 

 

©Brian Baker 2017

(Also published today in my local newspaper, The Signal)

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13 comments on ““Fair Tax” or False Promise?

  1. The Crawfish says:

    You missed one of the key features, the prebate. Taxpayers get a check every month for the average taxes paid for their size family in their zip code for food, housing, and clothing. That covers the property tax issue.

    • BrianR says:

      Nope, I didn’t miss that. It’s one of the mechanisms that’s still going to require the existence of an IRS to administer, as I wrote.

      Further, it’s not at all reflective of what people are REALLY going to be socked with. Again, the price of a CAR? Or a HOUSE? You’ve gotta be kidding me.

      If I bought a new house at, say, $500,000 — which doesn’t get you much of a house here in California — I’d be paying $100,000 in “Fair Tax”, as well as all the state taxes involved.

      Do you have any idea how many YEARS I’d have to pay taxes under the current system to even come close to that $100,000?

  2. Nee says:

    My take on the Fair Tax or Flat tax was always that it would “force engagement” of all those who believe they are entitled to anything that the producers bust ass for! As the VFTI resident “PolllyAnna,” I like to think is that they will then learn to spend the money that they actually have to spend on essentials, not what they believe they deserve because someone told them so.

    And that means if they can’t cover the Fair or Flat tax up front, they don’t get to consume anything not essential to living and breathing. Food or meds should not be taxed as they are essentials. Perhaps looking at it from a perspective of “need”? Oh…Whoop der it is!

    I guess that is too much to ask, and I admit to not having considered the short-term picture which we know IS that the gov’t is not known for expedience or common sense. I am living and breathing it on a daily basis in my new job. Martin used to be convinced that the IRS would become obsolete if this type of policy were enacted and was cocksure of being able to start over with his acquired skills.

    I believe there is a new “Master” in town, Brian!!😎

  3. captbogus2 says:

    How about this: Eliminate ALL taxes on Food, Shelter and Clothing. It doesn’t matter if you live in the Taj Mahal, eat lobster and wear ermine. No tax on necessities. In this day and time Transportation should be considered a necessity (remember lots of areas outside of the metroplex have no public transportation) and everything else be taxed at 100% of sticker price.
    That done, folks that don’t want to pay tax don’t have to purchase big screens and X-Boxes.

    • BrianR says:

      It’s important to remember that federal taxes don’t exist in a vacuum. No matter what the feds do, there are still taxes at the state and lower levels to factor into the equation.

      That having been said, it wasn’t my goal here to solve the tax issue. In fact, as I said, I don’t think there even is a solution until spending is brought under control. Until that’s done, everything else is just like pissing in the wind.

      I was explaining why, as far as I’m concerned, the “Flat Tax” idea is a non-starter.

  4. garnet92 says:

    You said, “The problem in this country isn’t the tax system. It’s spending.” BINGO!

    That seems so simple to say but practically impossible to execute – short of a cranial lobotomy for 535 members of Congress. That’s not entirely fair, there may be a few who understand, but on the whole, spending is the only thing that Congress is good at – they suck at reining in spending. It’s not that they don’t know how they can’t serve their Masters unless they funnel funds to those Masters. It’s a hopeless cause because most of our population wants “free” stuff and won’t shut off the spigot as long as the largess flows.

    • BrianR says:

      Yep. Exactly. Just as predicted by the Tytler cycle.

      “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover they can vote themselves largess from the public treasury.

      “From that moment on, the majority always votes for the candidates promising them the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.

      “The average age of the world’s greatest civilizations has been 200 years. These nations have progressed through this sequence:

      “From bondage to spiritual faith;
      from spiritual faith to great courage;
      from courage to liberty;
      from liberty to abundance;
      from abundance to selfishness;
      from selfishness to apathy;
      from apathy to dependence;
      from dependency back again into bondage.”

  5. Grey Neely says:

    Sorry I was late to the party Brian; but my father’s last remaining brother recently passed away. He too was in the USAF (Korea: F86’s and Vietnam: F100’s; DFC, Silver Star, Bronze Star, Air Medal, and several other foreign medals). His funeral was this weekend in Yazoo City, MS. He was a really good man and a hero.

    You have given me much to think about with your column on the “Fair Tax”. And I see many of your points. My only comment at this point is that something has to be done to simplify the US Tax Code and “de-weaponize” the IRS. Perhaps I am missing a salient point in all of this; but I was wanting to see a Fair Tax (or as you said a “VAT”) that could never be more than 10% by constitutional amendment if necessary. And certain items would be exempt from tax.

    In other words, a tax that gave every one a “dog in the fight”. But for that to probably work, all entitlements would have to be shut down. The large cities would burn to the ground with the end of entitlements; but after the fires stopped burning maybe we could get this country back on the right path.

    • BrianR says:

      Grey, my condolences. He sounds like a hell of a guy.

      I think what you’re considering is the “Flat Tax” proposal that’s also been kicking around out there for a while. I think that one makes a bit more sense, because it’s a flat income tax rate of 10% (I think) that’s imposed on EVERYONE’S income, with no exceptions. I like it for the reason you stated: it makes everyone have skin in the game. But unfortunately, political reality again raises its ugly head, and I think that in order to be enacted so many exceptions and exemptions would be written in for “the poor” and other “victim” groups that it would be essentially meaningless.

      But really, as I said NOTHING’S going to work unless and until SPENDING is addressed.

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