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Source link: http://archive.mises.org/8111/more-on-the-fairtax/

More on the FairTax

May 15, 2008 by

Now online is my article from the May 12 issue of The New American, “Is Making Taxes ‘Fair’ the Answer?” This comprehensive article on the problems with the FairTax is not based on a Boortz book, although I think I mentioned him once or twice.

{ 6 comments }

Bryan May 16, 2008 at 8:02 am

Good article, but I think the article doesn’t consider some of the advantages the Fair tax system might bring:

1. Tax burden by people can be reduced by reducing their consumption (as it is not taxed at source of income, but on consumption)

2. Increases incentives to save and invest rather than consumption

3. Tax evasion becomes easier as online purchases are very hard to monitor by the state and regulate and hence less money into the government coffers.

Bryan.

Owen May 16, 2008 at 8:14 am

Incentives to invest will not necessarily increase because with consumption looking less attractive, investment returns will decrease because of lower expected future consumption levels.

However because there are no taxes on exports, this produces a heavy bias towards investment in export industries rather than in domestic industries.

Sales taxes will not be easy to avoid on the internet if nationwide sales taxes were introduced. There is no major problem with them in countries that already have national sales tax systems.

Put a few hundred government employees in a room with broadband and they could easily identify the online stores selling to americans, aswell as their couriers. Then they will go knock on some doors…

Bryan May 16, 2008 at 8:51 am

Well, the incentive to invest will not necessarily decrease for investments outside the country.

Enforcement on the internet is not easy at all, especially websites hosted outside the country. Although these goods will have to go through customs to reach the customer, it does open up avenues for evasion.

As an example, in Switzerland – Wealthy foreigners pay tax as a percentage of what their annual expenditure in Switzerland is. For a wealthy person this is far better than paying tax on his income. Hence, the wealthy will pay far less tax with the fairtax system as the ratio of consumption to income is usually lower for wealthy people than middle class or poor.

Bryan.

Owen May 16, 2008 at 9:18 am

I agree Bryan, you are right. In fact there could be a large migration of services industries offshore such as legal services and accountancy, computers, basically anything that can be done over the internet or phone.

Lowell May 16, 2008 at 7:14 pm

Tax evasion becomes easier as online purchases are very hard to monitor by the state and regulate and hence less money into the government coffers.

Actually, this is probably a big disadvantage. This will give the Feds the excuse they are longing for to monitor all internet communication. Privacy will become as quaint as fireside chats.

The urge to attempt to avoid paying the tax will be irresistible. Thus, similar to the war on drugs, we will create a whole new class of criminal, the fair tax resister. There will be bounties when your neighbors turn you in. I file this under “how can things get any worse?”

Bryan May 17, 2008 at 5:16 am

Yes, good point about turning creating a new criminal class.

But what about this point:

In Switzerland – Wealthy foreigners pay tax as a percentage of what their annual expenditure in Switzerland is. For a wealthy person this is far better than paying tax on his income. Hence, the wealthy will pay far less tax with the fairtax system as the ratio of consumption to income is usually lower for wealthy people than middle class or poor.

Bryan
United Kingdom
bryan1410@hotmail.com

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