J.J. Jackson (www.thelandofthefree.net)
Now that April 15th is passed and many of the headaches are gone it is time to bring up tax reform once again. And the topic nearest and dearest to my heart this time of the year is the Fair Tax which is currently before the Congress. And I ask the question, what really is wrong with the “Fair Tax”?
The answer is not much. It is a tax plan that eliminates hidden and burdensome corporate taxes which you and I ultimately pay for in the cost of higher goods and lets you see your entire pay check each month and do with it as you please. It is a plan that taxes only new goods and by removing hidden taxes makes American made goods more cost competitive than the foreign goods sitting right next to them. It also means that there will be a huge economic incentive for foreign manufacturers to build factories here in the States and use American labor to avoid the net negative impact of the final tax rate to be levied on their goods that would normally be imported and marked up by 18-23% depending on the final plan.
But it is not without a couple flaws as proposed and these flaws are designed for the sole purpose of pandering to certain special groups that would have no interest in supporting such a dramatic change to the tax code without them. First, under the Fair Tax there is still a group of Americans that do not pay any tax. Second, is that when it gets implemented and works (and it will work) Congress is going to get a lot more money to spend on more bloated government.
Readers know that I support the Fair Tax Act over all other tax plans out there. I’ve done my research and I have spent hours looking at the other plans and analyzing their pros and cons. But readers also know that when I think something is wrong I have no qualms about saying so.
The Fair Tax as currently proposed includes a monthly “prebate” to all households in America which includes a refund for all sales tax that would be paid up to the poverty level. This is of course calculated by assuming that anyone at or below the poverty level is spending all of their money on necessities of life which include the proposed sales tax. This refund is paid to everyone whether you make $10,000 a year or $10,000,000 per year.
Problem is that this means that anyone under the poverty level pays no net tax and that means that as proposed we still have a progressive income tax that places the burden of funding government upon the more wealthy. Sound familiar? It should because that is exactly the way the current system works.
Currently as you earn more, your tax rate goes up. Under the Fair Tax, as you earn more your tax rate goes up. Although simpler with only two categories one of which are people that pay no tax and those that pay X%, this is still a major problem. The major problem is that you continue to have a portion of the American populace that has no financial incentive to maintain limited government. After all, they are not paying for it. And what is worse is that by simply changing the “poverty” level elected officials can increase that voting base which has no financial incentive in the government.
This is also important when you consider the bigger of the two problems which is that the Fair Tax will work. Most people scratch their heads and think to themselves “lowering my tax burden and increasing money in my pocket is a problem?” You bet it is. At least when dealing with our politicians in Washington and a tax that is currently revenue neutral to the current tax system and feeds off of a growing economy and demand for new goods.
Moving to a national sales tax which increases the purchasing power of the American consumer means that the American consumer will have more money, will spend more money, and ultimately will create more wealth and generate more revenue to the Federal government. The problem with the Fair Tax is the potential for an upward spiral of government revenues.
This tax plan runs the risk of making the Federal bureaucracies so flush with new money that unless the proper controls are put in place and the American people are vigilant enough to force their elected officials to continue to lower the overall sales tax as revenues increase, socialism will become rampant. And this is where those below the poverty level that pay no net tax hurt the system. Because as government revenues increase, so will the calls for more money for these low income persons and their lobbyists. Congress can, and will, find all sorts of pet projects and unconstitutional programs to spend this new money on. If you doubt that I have an assortment of bridges in and around the United States to sell you.
The problem with the Fair Tax is that it is too good of an idea. That doesn’t mean that I am against it. To the contrary. I am all for it and out there with all guns a blazing asking people to write their representatives and show their support for dismantling the draconian tax code that causes everyone who pays taxes headaches every March and April.
But I am more importantly reminding everyone that simply reforming the tax code will not solve our problems in this country with runaway unconstitutional and socialist spending. If anything, it can get worse because politicians will use the excuse of having plenty of money to not do away with those programs that should not be in existence in the first place.
Vigilance must be eternal with the Fair Tax. If it isn’t we could be right back where we started after a few short years.
Author:
J.J. Jacskson is the lead editor and owner of The Land of the Free (www.thelandofthefree.net)
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