NCPA - National Center for Policy Analysis

FAIR TAX FLAWS

January 8, 2008

If words were deeds, we could simply declare that by switching from a federal income tax to a "Fair Tax" (i.e. national retail sales tax), tax cheating would end, code complexity would be a thing of the past, and illegal immigrants would start paying taxes.  And, of course, we'd switch into high economic growth -- forever, says Jerry Bowyer, chief economist of BenchMark Financial Network.

The problem is that none of this would happen:

  • People would simply switch from cheating on income taxes to cheating on sales taxes. 
  • This doesn't happen much because sales taxes are much lower than income taxes, but if that were reversed, consumers would cheat more.
  • Look at cigarettes; organized crime sells smokes on the black market in jurisdictions that impose high cigarette taxes.

Furthermore:

  • There is a large category of economic activity designed to avoid sales taxes -- it's called smuggling.
  • We don't hear that word much anymore, because we're not a sales-tax or tariff-based system anymore.
  • Increase sales taxes to a combined state and federal 30 percent, up from a state-based 6 percent now, and watch the dodging begin.
  • As for immigrant; if they're here illegally, why won't they also buy and sell goods on the black market.

None of this matters anyway, says Bowyer, because we will never make this change.  The 16th Amendment will not be repealed in favor of a tax vigorously opposed by an army of restaurants, pubs and retail stores. 

Source: Jerry Bowyer, "Fair Tax Flaws," Wall Street Journal, January 8, 2008.

For text:

http://online.wsj.com/article/SB119975825638773747.html

 

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