FairTax 2: Incentives

Another commenter in the FairTax discussion, and my reply:

[Y]ou’d expect conservative media to support a policy that shifts the tax burden off the rich – the opposite is the case. The Wall Street Journal ran a piece not so long explaining why “fair” tax is an bad idea. It was unexpected to say the least.”

First, google[Wall Street Journal FairTax]. You will find that WSJ has nearly a decade of running opinion pieces both for and against the FairTax concept. The WSJ editorial page is sort of semi-conservative, in the sense of supporting the Washington Establishment Republicans much more than the Washington Establishment Democrats. But on many issues, WSJopinion is quite liberal, such as demanding open borders. And, being an opinion page, they run contrasting points of view as has been the case with the FairTax.
I note that the opinion pieces opposing FairTax in the WSJ are generally quite deceptive about it: “People will switch from cheating on their income taxes to cheating on sales taxes!” Well, no. State sales taxes already exist, and “cheating” on them is very difficult for consumers. For the retailers — the collectors — it is risky, tough, and problematic. The fiercest tax enforcement now is at the state sales tax level; run afoul of them and you will fondly remember dealing with the IRS. This is not a major issue, in my opinion.

What the opponents do not take into account is the huge cost of taxes, and their collection, buried in all purchases in the US. These would drop dramatically, and a big chunk of government infrastructure would simply disappear as unnecessary. (This explains the establishment opposition to change.)

The impact on the lowest (or zero) income folks would be threefold:

First, the prebate gives them an income right out of the chute, deposited into an ATM-card accessible account every month by the same folks doing this for SS deposits. This is electronic and simple and requires little infrastructure. For those who spend little money, this can produce “leftover” money that will be a net gain from their current situation.

Second, they will benefit most from the reduced prices of everything, as the tax burden buried in all of it goes away.

Third, and no one seems to be mentioning this: Even though the lowest income folks (like everyone else) get money every month to cover (or more) the sales tax, THEY STILL PAY IT every day. And they vote. So any proposals to increase the tax rate would be met by skepticism from ALL voters, not just the half of society currently paying for all of the federal government.

This last effect would tend to encourage the federal government to reduce the hundreds of billions of dollars of waste that even their own auditors admit that they have. And it would make the “gee, let’s throw new bribes around to buy more votes” effect greatly reduced, whether those bribes are aimed at corporations or the “middle class.”

New expenditures would need to be sold to the country, because the country would (perceive themselves to) be paying for it. This, to me, is the most positive aspect. The actual impact upon the poor would be net positive, but now they would be on the side of government efficiency.

As am I.

==============/ Keith DeHavelle

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