Monday, August 28, 2006

The "Fair" Tax is a welfare scam


Over on one of the Yahoo! Groups I frequent, a poster wrote the following:

There is an old saying that says that the perfect is the enemy of the better. The fair tax while not perfect is clearly much better.


Below, I extend and revise my reply, which I figure is both detailed and succinct enough to make a good blog post/capsule argument (since I've been alluding to the "Fair" Tax now and again, but haven't actually taken it head on). I've also linked some of my claims to supporting source material:

Only if by "clearly much better" you mean it:

- Results in the theft by government of just as much money as the income tax (the "Fair" Taxers boast that their proposal is "revenue neutral");

- Results in the same amount of, or perhaps more, redistribution of wealth than the income tax (the "Fair" Taxers boast that their proposal is at least as "progressive" as the income tax);

- Puts every American on the dole so that they're recipients of monthly government welfare checks which the majority will likely fight tooth and nail to keep coming in perpetuity (the "prebate"); and

- The "Fair" Taxers' arguments about eliminating the IRS aside, will require a bureaucracy to administer (both to collect and to send out the welfare checks).

The "Fair Tax" is at least as bad as the income tax in every way, and worse in some ways. It's not a tax cut. It's not a tax elimination. It's just a strengthening of the tax system by linking it to a welfare program -- just like Social Security, which has been a "third rail" issue in American politics for half a century precisely because millions of Americans have a vested interest in keeping the checks coming.

It may not be politically possible to get the income tax straight-out eliminated right now, but it is politically possible to get it CUT, which would be a far superior alternative to the "Fair" Tax.

The Boston Tea Party's program calls for universal, bottom-up tax cuts as follows:

"The Boston Tea Party calls for legislation adopting an annual, regularized increase in the personal exemption to the federal income tax of $1,000 or more, and the additional application of said personal exemption to all FICA/Social Security taxes paid by employees and employers."

Members of Congress (mostly Democrats) routinely propose and vote for increases to the personal exemption, so it's politically doable.

Increases to the personal exemption give EVERYONE who pays taxes a tax cut, from the janitor at the local factory to Bill Gates.

Increases to the personal exemption remove people from the tax rolls and withholding treadmill entirely (every time the exemption goes up, more people's income falls below the taxable amount).

Applying the personal exemption to Social Security payments would address the extreme regressivity of the Social Security system. The poorest people pay proportionately the most in Social Security taxes (since the requirement to pay is capped at a certain income level in, I believe, the $60K range), and they receive the fewest benefits (due to shorter lifespan).

Eliminating the income tax is the best option. Failing that, cutting it is. Replacing it with a tax that doesn't cut taxes, doesn't remedy redistribution problems, doesn't eliminate (or probably even reduce) the associated bureaucratic and administrative costs, and puts every American on government welfare is just a scam if the goal is to reduce or eliminate taxation.

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Related Links: Kim Priestap: Fair Tax Blog Burst | third world country: Fair Tax/OTA

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