Sunday, August 7, 2011

Yet More FairTax Rebuttal

I recieved this comment from Chad in response to "More FairTax Rebuttal". Since Blogger won't let me respond to comments, I decided to turn it into its own post. I will respond to each point of Chad's comment individually.
Flat VS Fair
1. Flat doesn't tax illegals, drug dealers and others who currently do not pay income taxes. Fair Tax does.
It would also tax social security recipients, retired military personnel, and other persons whose incomes are currently privileged from income tax. Additionally, the cost of providing a social safety net would "necessarily skyrocket", since the tax would have to be paid on purchases made with welfare dollars (food, baby furniture, etc.). The proposed "prebate" would not be sufficient to cover the tax on these expenses.

It's more than a little irresponsible to propose tax policies because of their punitive value- i.e. "taxing pimps and drug dealers"- because some other group of people will also be unfairly penalized- i.e. social security recipients, and every taxpayer whose money goes to provide social welfare programs.

2. Flat is still a tax on income, allowing the government to control how much they tax you. With FT, you could conceivably live "off the grid" and not pay federal income taxes, therefore you control how much you are taxed, not the government.
Two points:

1) A question: Why do FairTax proponents assume that the FairTax taxation rates will never be changed? As I explained in a previous post, we must assume that FairTax rates would change, and would change in ways intended to manipulate consumer behavior.

2) "Off the grid", as in, the way pimps, drug dealers, and illegal immigrants currently live? How would FairTax tax this group of "off the grid" people, without taxing all "off the grid" people?

3. Flat would reduce the IRS size, but not as much as the Fair Tax. April 15 would still mean preparing taxes, which is $400 million that could be going elsewhere.
I'm glad Chad brought this up. FairTaxers won't discuss this detail, but I will: The supposed "elimination of the IRS" is true only to a certain extent: It would pass the responsibilities of the IRS onto state and local tax departments, who would become federal tax collectors by default. Additionally, state and local governments would be required to pay the 23% tax on all official purchases. This means each taxpayer's state and local taxes would "necessarily skyrocket".

4. Flat still taxes businesses. When you raise taxes on corporations, they just raise the price of the product, and we all end up paying for it. Corps don't pay taxes, people do.
Another great point! Every serious Flat Tax proponent (including myself) is in favor of eliminating the corporate income tax. Stated differently, we're in favor of applying the above-mentioned (and totally correct) economic principle with greater vigor than FairTax proponents, who still want businesses to pay a 23% (or more) tax on business purchases.

5. Flat tax would still include deductions for certain items, which means lobbyists will still be around, and tax loop holes are bound to open. It also means we will be back to where 49% don't pay any taxes.
FairTax would contain deductions for certain items, too (read the link provided in point #2 above). The difference is, FairTax deductions would have a magnified effect on purchasing habits, since the tax is paid "at the register". Adding or exempting the 23% (or more) tax on a given item will encourage or discourage the immediate decision to purchase it. This means the FairTax can be used to manipulate everyday purchases- sugary soft drinks, types of lightbulbs, you name it. Income tax deductions, on the other hand, don't have the capability to manipulate purchasing on this small, every day scale.

Flat tax has many of the same issues that you point out with Fair Tax (like the government being able to change the amount they tax at any time), and more. Fair tax Pros greatly outweigh its cons, and definitely is a better solution than the flat tax.
There are many, many problems with FairTax- FairTaxers simply refuse to acknowledge them. Some of them are academic, but others- like the added burden of higher state and local taxes- would cripple middle America. Any proposal which contains the prospect of crippling the middle class is certainly not "a better solution".

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