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Source link: http://archive.mises.org/9731/the-flat-tax-is-not-flat-and-the-fairtax-is-not-fair/

The Flat Tax Is Not Flat and the FairTax Is Not Fair

April 3, 2009 by

Two specific tax reform plans that some libertarians have fallen for are the Flat Tax and the FairTax. Both plans promise to invigorate the economy, increase employment, and raise everyone’s standard of living. Neither one is true to its name; neither one is an incremental step toward overall lower taxes. Both are fraught with problems and contradictions; both are revenue-neutral plans that would fund the federal government at the same obscene level that it is now. FULL ARTICLE

{ 138 comments }

Paco April 5, 2009 at 12:44 pm

Scott D

Based on your latest post, I think your original comment, on Saturday, is correct. There is no use in debating this issue — with you.

For enlightenment, refer to the post from Chris Long.

Scott D April 5, 2009 at 1:02 pm

Paco,

You are probably correct. To debate this matter on your terms, I would have to accept premises to which I violently disagree and which would significantly weaken any attempt at argue the matter with moral and logical consistency.

As a thought experiment, imagine we were transported back in time to the turn of the 20th century, and the debate we are currently having was over whether to institute an income tax or a sales tax that will drastically expand government and consume 25% of GDP. What should the libertarian position on this be? Lesser of two evils? Or would you rather simply oppose evil altogether? Would the imposition of a 30% sales tax in this situation be considered a “triumph” for libertarians?

Also, please have a look at the 16th amendment issue. At the very least, it’s a solid loophole for reinstituting the income tax.

BuckSteele April 5, 2009 at 1:25 pm

Paco,

You’ve done very well on your explanations, and your responses have been amazingly temperate. You are to be commended.

I agree with many that the Fair Tax isn’t perfect, but GEEZ is it better than the current system! One of the biggest things that I don’t think you mentioned was that should be very effective in reducing goverment control in our lives by social engineering (and market interference) through the tax code. That will throw a lot of lobbiest’s out of DC! Unfortunately, that’s not a good selling point to get it through Congress. Hopefully, there are other selling points to offset that…general simplification, the progressive aspect of the prebate, etc.

Also, can you see the possibility…finally…of a tax revolt if congress tries to reinstitute an income tax if peole get used to (after the first paycheck) of getting every penny they earned and the concept of “takehome pay” disappears!!!??

Once again, well done.

Paco April 5, 2009 at 3:38 pm

Yes, I do see the possibility of a tax revolt. And that would be the best thing to happen. However, I think it is unlikely. Primarily because too many people (1) don’t understand that they are paying embedded taxes; (2) see social security taxes as an “investment” in their retirement program; and (3) are in the almost 50% of the population that pay little or no income tax.

That’s why I think the best, possibly achievable, path toward a more libertarian society is the FairTax. As I have said before, it’s not named the PerfectTax. Taxing people every time they buy something will at least go part way toward eliminating the three reasons I mention above.

Then the liberal/conservative battles on taxes will be whether to increase or decrease the prebate and whether to add or reduce the tax by a quarter percent. At least those are black and white choices. No ambiguity.

Compare those battles with trying to convince the chairman of the House Ways and Means Committee not to pass some obscure loophole in the tax code that is being pushed by a lobbyist representing clients willing to contribute $100K to his next campaign. After all, it will only cost the average family 25 cents a week.

Chris Long April 5, 2009 at 6:25 pm

Don Fallon:

My intent is not to justify taxation. As previously stated, I understand, and largely agree with, the Libertarian/Austrian philosophy on taxes; however, it would seem that I’m a little more grounded in reality than most here when it comes to the issue. Unfortunately too many Libertarians/Austrians seem to be unwilling to settle for anything less than what they deem the ideal tax solution – which, depending on the individual, ranges from zero to only what is absolutely required for the operation of the Federal Government as stipulated by the Constitution.

Either one of these scenarios would be fantastic, but there is simply no way (barring armed revolution) that this country is going to jump from the current system directly to “the ideal”. Any thought/belief that such a utopian wet-dream is possible is simply an exercise in futility. As many here have aptly stated, the US Government is a Leviathan with an insatiable appetite for our hard-earned money – do any of you honestly think that it will succumb to such drastic change? Not a chance. Of course, that’s just the Government – we haven’t even discussed the fight that will come from the dependents that suckle at the Government’s teat. The only way to reach a Libertarian/Austrian acceptable tax system is through an intermediate step, or series of steps.

I share the same ultimate goal, but I realize that to stubbornly stick to absolutes will do nothing but ensure that the ultimate goal will never be reached, or even sniffed. As such, I am open to any realistically feasible alternative to the current tax system that will help move us all toward the ultimate goal. Presently there are really only 2 main-stream alternatives right now, with several other lesser known/lesser supported, and of those, the FairTax is the best as far as I can tell.

Now again, I freely admit that I am not a tax expert and/or an economist, but the FairTax, even with all its flaws, presents the most compelling case – and the failure of opponents to put forth a substantial, fact-based, apples-to-apples comparison/critique only strengthens the case for the FairTax. If so many of you are so opposed to the FairTax, then it should not be difficult to compile such a rebuttal. And I’m sorry guys/gals, I understand and agree with your point-of-view, but saying that “taxes are wrong/unfair/harmful” or any variation thereof is NOT an acceptable rebuttal. This doesn’t mean the arguments are not true, but they will only serve to garner a few pats on the back in Libertarian/Austrian circles. This type of debate will do nothing to advance the cause – and will most likely hurt it. The argument at this stage is not whether or not we should be taxed at all, or that taxes are bad/unfair/unjust/etc, but rather what is the best alternative to the abomination that exists today.

We can all sit on the sidelines, stubbornly clinging to absolutes like a bunch of petulant curmudgeons, or we can get involved by either coming up with a viable alternative to the Fair/Flat taxes or backing the one that will more quickly deliver us to the ultimate goal. The former is counterproductive and guarantees nothing except that our shared goals will never reach fruition, but the latter, at the very least, offers possibility by putting us on a path toward realization. It’s not perfect, but it would be a start…and failure to act only adds to the inertia that is powering the status quo.

What we have now is unacceptable, and what all of us ultimately want is unattainable as a one-step solution, so please, if the FairTax is not the needed intermediate step, or one of them, what is…and what’s the best way to mobilize support for it that extends beyond message board rhetoric amongst like-minded people?

Chris Long April 5, 2009 at 6:26 pm

Don Fallon:

My intent is not to justify taxation. As previously stated, I understand, and largely agree with, the Libertarian/Austrian philosophy on taxes; however, it would seem that I’m a little more grounded in reality than most here when it comes to the issue. Unfortunately too many Libertarians/Austrians seem to be unwilling to settle for anything less than what they deem the ideal tax solution – which, depending on the individual, ranges from zero to only what is absolutely required for the operation of the Federal Government as stipulated by the Constitution.

Either one of these scenarios would be fantastic, but there is simply no way (barring armed revolution) that this country is going to jump from the current system directly to “the ideal”. Any thought/belief that such a utopian wet-dream is possible is simply an exercise in futility. As many here have aptly stated, the US Government is a Leviathan with an insatiable appetite for our hard-earned money – do any of you honestly think that it will succumb to such drastic change? Not a chance. Of course, that’s just the Government – we haven’t even discussed the fight that will come from the dependents that suckle at the Government’s teat. The only way to reach a Libertarian/Austrian acceptable tax system is through an intermediate step, or series of steps.

I share the same ultimate goal, but I realize that to stubbornly stick to absolutes will do nothing but ensure that the ultimate goal will never be reached, or even sniffed. As such, I am open to any realistically feasible alternative to the current tax system that will help move us all toward the ultimate goal. Presently there are really only 2 main-stream alternatives right now, with several other lesser known/lesser supported, and of those, the FairTax is the best as far as I can tell.

Now again, I freely admit that I am not a tax expert and/or an economist, but the FairTax, even with all its flaws, presents the most compelling case – and the failure of opponents to put forth a substantial, fact-based, apples-to-apples comparison/critique only strengthens the case for the FairTax. If so many of you are so opposed to the FairTax, then it should not be difficult to compile such a rebuttal. And I’m sorry guys/gals, I understand and agree with your point-of-view, but saying that “taxes are wrong/unfair/harmful” or any variation thereof is NOT an acceptable rebuttal. This doesn’t mean the arguments are not true, but they will only serve to garner a few pats on the back in Libertarian/Austrian circles. This type of debate will do nothing to advance the cause – and will most likely hurt it. The argument at this stage is not whether or not we should be taxed at all, or that taxes are bad/unfair/unjust/etc, but rather what is the best alternative to the abomination that exists today.

We can all sit on the sidelines, stubbornly clinging to absolutes like a bunch of petulant curmudgeons, or we can get involved by either coming up with a viable alternative to the Fair/Flat taxes or backing the one that will more quickly deliver us to the ultimate goal. The former is counterproductive and guarantees nothing except that our shared goals will never reach fruition, but the latter, at the very least, offers possibility by putting us on a path toward realization. It’s not perfect, but it would be a start…and failure to act only adds to the inertia that is powering the status quo.

What we have now is unacceptable, and what all of us ultimately want is unattainable as a one-step solution, so please, if the FairTax is not the needed intermediate step, or one of them, what is…and what’s the best way to mobilize support for it that extends beyond message board rhetoric amongst like-minded people?

Chris Long April 5, 2009 at 7:01 pm

My apologies for the double post (browser problems), and also for mistakenly calling Dan Fallon, Don. Both were unintentional…

Dan Fallon April 5, 2009 at 8:08 pm

Chris Long,

I do understand the need for practicality and will weigh FairTax agendas in this light. That said I do believe there is a difference between unrealistic expectations and utopian ideals. Indeed, it is unrealistic to expect that the US Government dissolve overnight. On the other hand it is utopian to believe that government, democratic or otherwise, can be shaped into something that is mostly fair. To be invested ideologically in the existence of taxation is to unwittingly agree to injustice.

It is way more unrealistic, crazy really, to think that the power and privilege that taxation commands can be tamed vs. the hopeful prospect for taxation’s demise.

Besides, ending taxation only represents removing one piece of the anti-social pie. If you understand, as I do, taxation to be a crime- then utopianism has nothing to do with standing against it. It has everything to do with what is right.

To most colonists it was inconceivable that the Crown would no longer be sovereign right up until the mid 1770s. How many in the European/American world would believe that chattel slavery would be abolished within a couple of generations? Was the idea of ending slavery utopian? unrealistic?

Within the narrow paradigm of ‘what form taxation should take, the current system or FairTax’ it may seem like FT is radical. But therein is the problem.

Who has the claim to the higher moral ground when it comes to promises? Socialists, taxists, and government types always claim they are doing what is best. It is that a system based on taxation cannot deliver.

So what is practical about re-arranging the deck chairs on the titanic?

In addition, I do not think that taxation’s imposition on economic calculation should be dismissed- especially since there have been many calls for economic proof of taxation’s destructiveness.

Cheers

Paco April 5, 2009 at 11:06 pm

Chris Long: Bravo!

bucksteele April 6, 2009 at 6:12 am

Paco,

Just a clarification on the tax revolt possibility. I DON’T see the slimmest possibility of a tax revolt as the situation currently stands. The only people with a motivation TO revolt are seriously in the minority…the people who pay most of the taxes. I was referring to the time if and after there is no withholding or payroll taxes (at least at the Federal level), and then congress tries to implement an income tax.

D. M. Dillon April 6, 2009 at 6:14 am

We are obviously long past the time when we should take a Meat – Axe approach to taxes : we need chainsaws.

tm April 6, 2009 at 8:20 am

I oppose income taxes, but if we had a true flat tax that did not give an initial exemption on the first X dollars, that would be far better than what we have. Since some percentage of the population pays no income tax, they have no incentive to demand lower income taxes. Changing this such that everyone pays a percent on every dollar would be a great way to get everyone in the game to oppose income taxes.

tm April 6, 2009 at 8:20 am

I oppose income taxes, but if we had a true flat tax that did not give an initial exemption on the first X dollars, that would be far better than what we have. Since some percentage of the population pays no income tax, they have no incentive to demand lower income taxes. Changing this such that everyone pays a percent on every dollar would be a great way to get everyone in the game to oppose income taxes.

Robert April 6, 2009 at 10:23 am

The Fair Tax works only in the class room. Our current tax policy gives politicans a reason for being. It gives them the ability to do favors for special interests.

The reality of the NST is that IF it were passed into law, and IF the 16 Amendment were revoked you would have politics chipping away at the tax base (AARP, Realtors, etc etc). The secret of the NST is the base. It covers EVERYTHING.

The last thing you want is the euro system with their VAT.

Remember folks, humans act on their own behalf not that of others. People with influence will eventually game the system to their benefit.

we're screwed April 6, 2009 at 12:04 pm

that people, on the mises.rog site no less, are supporting taxation for the ‘necessary state functions’ shows that the possibility of ever eliminating the murderous leviathan is rapidly approaching nil.

wow. and I thought ‘we the people’ had a chance. the best option is to streamline government theft in the hopes that people will wake up to their pilfering? hahahahahahahaha….good one.

AC April 6, 2009 at 12:10 pm

We do focus on the paying of taxes and the taxing mechanism a tad too much, perhaps.

There’s no other way to cut spending than to, uh…well, … cut spending.

My contention is the total spending of all gov’t, federal, state, local is the real problem, along with the total amount of debt our Gov’t has incurred. To attack the problem of taxation, I believe misses this key element. I am not suggesting we forego continuing to decry coerced taxation, but I am suggesting adding the component of total spending.

For example (these figures are illustrative only and approximations), the current US federal budget is $4 trillion. With a population of 300 million, that is the equivalent of $13,333 for every man, woman, and child, or $53,333 for a family of four. Add in the national debt, and these figures are approx. 4x and climbing. With this money going to the gov’t, it means the employer can’t hire you, can’t produce a better product, businesses and individuals give smaller portions to charities. When approx. only 30 cents of every dollar that is specifically collected to help the poor, actually goes to the poor, I’d say we’ve got ourselves a problem. Where’s the over 70 cents? Good question. It’s wasted in a bureaucracy that makes it harder to get out of poverty.

Gov’t is always a waster of money because 1) it didn’t have to earn the money to get it, 2) it can legally steal more, and 3) it disrupts the market pricing signals so it can’t figure out if its getting a good deal, not that it actually cares about getting a good deal.

Paco April 6, 2009 at 3:56 pm

I can walk and chew gum at the same time — in fact I’ll even throw in humming.

What I am hearing is that libertarians should only focus on cutting spending. OK. Another way of putting that is to reduce the size of government, at all levels.

Here’s how I approach this goal:

1. I always vote against all bond issues. Period.

2. I always vote for the Libertarian candidate, if there is one. If there is not a Libertarian, I vote for the person who I think will be less likely to propose or support more laws or more spending. Usually, in Texas, that is the Republican candidate, although sometimes it’s a Hobson’s choice.

3. I write letters and comments about reducing the size of government wherever I can — the Internet, newspapers, elected officials.

4. I belong to trade associations that generally oppose new taxes. When they support some silly new law (like banning transfats) I let them know I oppose it.

5. One more thing i do: I support the FairTax. I was born at night, but I wasn’t born last night. I realize the FairTax along with repeal of the 16th amendment is a long shot. But an even longer shot is for anything to change under the current tax system.

Think about what happens locally or at the state level when some school bond comes up. The proponents say it will only add 50 cents a week to the average persons property taxes — and it passes because it’s “for the children” and nobody really notices that their monthly PITI goes up by $2.

But what often happens when the government tries to raise gas taxes or the sales tax? People scream bloody murder because they can identify with paying more each time they buy gas or a Happy Meal.

The FairTax will be a big slap in the face every time someone buys anything. With the FairTax, maybe a politician who promises to reduce the tax from 23% to 22% will be able to “buy” votes the right way — by promising relief to everyone instead of to the supporters with the biggest wallets (or the most votes to deliver).

And of course, there will be pressure from the AARP to eliminate the tax on prescriptions and hearing aids. But to do that they will either have to increase the overall sales tax rate — on everyone –or increase the deficit. That’s a lot easier battle to fight than opposing raising some hedge fund manager’s marginal tax bracket from 36% to 39%.

Ball April 6, 2009 at 8:03 pm

The only federal tax that makes sense, if you take the term ‘federal’ at face value, is a tax on the states (or a fee for membership in the USA).

The so-called FairTax is nothing but a way to introduce the (ironically termed) VAT, which will be added to all previous taxes. The whole 16th amendment clause is a farce—when has a tax ever been repealed? Heck, the withholding tax was a “temporary measure,” and now we’re supposed to be believe the 16th will be repealed instead of that clause in the FairTax bill? Give me a break.

And then there’s this:

>Quite frankly, I don’t know how the heck we would fund national defense without it or some other form of taxation.

OH NOES!! Who will kill the ayrabs now?

Mike Stahl April 7, 2009 at 12:43 am

I have to say, perhaps it’s time to be honest. It’s been bandied about that “both Bill Gates and Mother Teresa” will get the quaintly termed “prebate” checks (that will, no doubt, arrive with unicorn surety and timeliness) in order to offset the tax paid for “essentials of life”. This puts everyone, from Bill Gates to Mother Teresa, on the dole.

A newsflash: people on the dole are subject to enhanced government control currently-government housing is inspected, and you get the whiff of the idea of drug tests for welfare recipients from time to time, and God knows what else those wretches deal with-bureaucrats at the least. I would suggest that anyone who thinks that a check from the Feds will be minus a string is deluded at best. Ask AIG, or GM.

And the size of the dole check will permit politicians to continue divisive pandering unabated, and even abetted-paying for it with the debt monetization as always. The people who created the plan must know that these things will happen, putting their integrity seriously in question.

Personally, I’ll take the Devil I know-especially when the other Devil is openly claimed to be just as large In Utero, has, advertised, shiny new shackles jangling, and is backed by people whose, to paraphrase Frank Herbert, eyes are chilled by the glint of Jihad.

Besides, I like tax loopholes and deductions-I’m an outside salesman, I’d either be raising prices dramatically, or out of business without the vehicle millage deduction(likely looking for a real job in the current environment, honestly). Oh, I know, I’ll get a bigger prebate to compensate, so long as my vehicle is “green”, right?

The amount of taxation is the sin-not the complexity, unless you consider the Abacus superior to the PC.

Actually, if this comes about, I might just shoot myself in the foot and try out disability-if I have to track down a bureaucrat to find where my money to buy things “essential to live” is, I might as well avoid work as well( and I think I could make a better “libertarian” case for that than some of the ones I’ve seen for the “fairtax”)

I know, I just don’t understand the plan. Educate me, do.

Tim Kern April 7, 2009 at 8:33 am

Several problems of logic here, the biggest (only obliquely smashed) is that any tax proposal “should” be revenue-neutral. (The expenses of compliance and the infrastructure to support these tax schemes would be societal savings — there is no need for income-neutrality, even to maintain the bloated government we now enjoy.)

Additionally, under any tax scheme other than a sales tax, the satanic mechanism of the IRS — the world’s largest government-sponsored terrorist organization — would continue to exist.

The damage done to America by the IRS is so very much more than financial, that the amount of tax itself is the least of my ulcers. The constant threat of audits, vague and capricious laws and rules, local interpretations, kangaroo tax courts and the threat of prison — these are the things that are ruining America.

The money involved is nothing more than “protection money” extorted in the same was as by any other bunch of crooks, and must be considered merely a cost of doing business in a dictatorship; but the terrorist tactics and unregulated powers of the IRS are crimes against humanity itself!

Strong views may follow…

JD April 7, 2009 at 11:57 am

@Tim: you’re right, I strongly agree. Except for your pardoning of the sales tax – those are just as forcibly-collected (if not more so) as any other. What we have is not a problem of funding the government, we have the problem that each person seems so arrogant that they think along the lines of ‘well, I’d pay my fair share voluntarily, but nobody else would, so we need enforcement.’ That’s the only real problem.

Libertarians and anarchists (the real kind, I mean, not the antilogical collectivist utopians) need to clarify their message, because we often get tied up arguing with people about how everything which exists must be abolished. It isn’t necessary – we only need to abolish the concept of ‘legal’ non-defensive force. Anarchists go off on long theory-sessions about how private defense agencies would look; this is not only confusing to the uninitiated (or usually, disinterested), it’s also totally unnecessary. Just make it so that existing agencies have to earn their money; let them try overreaching and see the effects it has on their power. Same goes for state and federal governments – they need not be torn down, only to be rebuilt in some currently-incomprehensible private manner; they could be left as-is if they were de-clawed.

Obviously, it is unrealistic to think this can be done from the top down; government will not willingly subject itself to such a loss of power.

There are ways though. Just for example, consider your local city. If you are like me, you live in suburbia, and you pay taxes to your county. Therefore, the portion which is returned to your city is first passed through several levels of bureacracy. This is where pseudo-governmental agencies (metropolitan councils, etc.) derive their power; by lobbying and putting pressure on county and state officials, they are able to exert influence over the requirements your city must fulfill to get its own money back. Hence, you see policy in your local city council which seems counter to the wishes of the locals; your money is being held hostage. There is one way around this: get elected to city council or mayor and push forward a new agenda which is composed of two reciprocal actions:

1. that a zero-dollar levy will be assessed for collection by the county
2. that the city will directly petition local residents for operating funds

What this does is to remove the power of the county, and therefore, those higher-up metropolitan and state councils. You can sell this as a very good thing (since it is), but one which will require good faith behavior on the part of local residents. The payoff is a huge reduction in the cost of city government, mainly by (a) cutting out the inefficiency involved in passing city money through county and state levels and (b) eliminating the onerous requirements of metropolitan councils.

This strategy can begin to be applied at the city government level, then through the public school boards, and then ultimately at county and state levels. Obviously this would not solve all our problems, but it’s a concrete idea that can be acted out by real people on the ground.

Chris Long April 7, 2009 at 2:26 pm

What is so profoundly troubling about many of the posts from the purists here is the obtuseness and myopia w/which they “advance” their ideals.

The lack of research/education/analysis among many of you, including Vance, on the topic of the FairTax is startling…and that’s being generous. You are so mentally shackled by your personal ideology that you cannot bring yourself to consider or accept alternatives. You claim (implicitly or explicitly) your enlightenment & petulantly dismiss the FairTax out of hand without educating yourself on the topic.

Instead of taking the golden opportunity of mounting a thoughtful, intelligent & fact-based opposition effort, you merely peddle misrepresentations & half-truths based on a loose “Cliff’s Notes” understanding of the topic. You do a disservice to your beliefs b/c your lack of intellectual honesty discredits your arguments, however valid they may be. On top of that, your actions only serve to bolster support of the FairTax among people who, like myself, are actively looking for dissenting opinion that is truthful, accurate & “apples-to-apples”. Instead of converting people to your opinion, you’re pushing them away.

Then there’s the fact that you are missing the point of the debate. The debate is not whether or not taxes are a good thing or a bad thing, or a childish war on semantics over the accuracy/validity of the movement’s common name, the debate is, how do we successfully transition from the [insert litany of applicable insults here] system we have now, to the ultimate goal that would be acceptable to all of us? What we all want, and what you will not accept anything other than, simply can’t be done overnight, or “cold turkey”. So there must be an intermediate step, or steps. The debate is about what is the best step(s) to take to accomplish our goals.

What’s worse, is that you criticize w/o producing a practical/viable alternative. Of course, I guess that shouldn’t surprise me. I have stated before that I am a novice when it comes to advanced economic concepts, but I am eager to learn more. Being a libertarian, I was naturally drawn to the Austrian school, but I’m not one to get all of my information from one source. As I search for alternative resources, the major critique of the Austrian school is that they are essentially big on theory, short on practice. I’ll take that w/a grain of salt until I learn more, but many of you are validating that criticism. Opposition means little w/o a viable alternative – it’s not enough to simply disagree.

So many of you waste so much time & energy “preaching to the choir” about the evils of taxation as if we don’t already know that & share your opinion. You’re not charting new territory. You’re not staking a flag anywhere. We all get your point. The difference between “us” (Paco, Clarity2009, myself, et. al.) & “you” is that we’re willing & hungry to take action to see that our goals can eventually be realized, whereas you would rather sit on the sidelines and gripe w/o offering a viable alternative. We’re not happy about the situation, & our support is given begrudgingly, but we give our support b/c we care enough about the ultimate goal to do something more than spew rhetoric to a bunch of people who share the same opinions. What’s that saying about “crap in one hand & want in the other”? You can’t simply “want reform/abolishment” & expect it to happen, & you’re pissing away your opportunity to contribute to your own cause.

As Clarity2009 astutely points out, all of “that might win you a ribbon in a “who is the most Libertarian” contest, but for those of us interested in actually seeing some improvement occur in our current situation, it is not very helpful.” Clarity2009 makes another excellent point in that “the cause of reducing taxes is not a fight anyone has to give up in order to support a change in the manner in which the current unacceptably high taxes are collected. Additionally, advocacy for one does not hurt the cause of the other. These causes complement each other, they are not mutually exclusive.” You do not have to give up your ideals to support an alternative. The task is Herculean as it is – why make it impossible?

Although perhaps I’m wrong? Maybe I’ve misjudged your intent? Maybe many of you are not really interested in the practical application of your ideals. Could it be that your real interest is in martyrdom? That seems more logical b/c your stubbornly myopic stance(s) does nothing to advance your cause, it only guarantees that your cause will never advance beyond rhetoric. Your unwillingness to accept anything less than 100% adherence & total capitulation by opponents is completely unproductive & unrealistic. Of course, if martyrdom truly is your goal, then you’re well on your way to achieving it. Unfortunately for you though, I doubt that you’ll have 72 virgins waiting for you on the other side.

Bob April 7, 2009 at 9:06 pm

Although I have practical issues with the “Fair tax” proposal, mainly in the way it creates a larger incentive for black markets, there seems to be, in the article and many of the comments, an opposition of a totally different kind, one that is left unnamed.
Let’s call our present state A, and the ideal “no forced taxation” libertarian state Z, while B is simply the government as it is now, with the “Fair tax” in place (I’ll assume it brings in the same $ to the gov as those taxes it replaces).
Then the 1st argument against it is that B is worse than Z, which while true, is hardly a useful criteria (it’s a bit like the statists comparing free market results to some utopic ‘perfect allocation’ and complaining it falls short).
The second complaint is that it addresses only minor issues, but leaves the important ones (ie the size of government) untouched. It is true, but there are benefits, like lower compliance costs, to name one. Even if you do not value these benefits at all, then B is no worse than A (or at least I haven’t heard anyone say that, I’ll just assume that it’s pretty much agreed upon). So why is there outright hostility to the proposal? And why is there no other solution advanced by those who oppose it (some other reform C through Y to be done while waiting to have the support or ability to achieve Z)?
And there I think is the unnamed opposition to the “Fair tax” idea: it might make things better than they currently are. And if you take the position that popular support of libertarian reforms is entirely caused by the harm imposed by government, then the shortest path to Z is to maintain the harmful status quo, and only push for a total reform.
Anything which makes government more palatable, such as reducing the headaches associated with the tax code, is seen as a detour from the straight line from A to Z. Just like the communists saw the welfare state as just a means of propping up capitalism, so do those libertarians see small government as making government less poisonous, and therefore less likely to be abandoned.
I can’t possibly emphasize enough how harmful this way of thinking is. It is similar to criticizing Gorbachev’s reforms based on the idea that he should instead have maintained the misery and suffering of the status quo for as long as he could, so that the eventual backlash would propel Russia right into anarcho-capitalism (note: I’m not defending that guy, just giving an example of this reasoning in a different context).
Libertarianism can stand on its own merits, it does not need to be preceded by total destruction of society by the state in order to gain acceptance. Until we can make things ‘perfect’ (ie. as good as humanly possible), we might as well make them better, even if only slightly.

JD April 8, 2009 at 12:30 am

@Chris Long: did it ever occur to you that you may be displaying your own brand of petulance, through your fairly dogmatic claim that the Fair Tax necessarily represents some type of forward progress? You may prefer to write off those who disagree with this premise as being unreasonable, myopic, obtuse, intellectually dishonest, rhetorical, stubborn would-be martyrs, but that’s really up to you. You admit that you are only somewhat acquainted with Austrian economic theory – well, you might do well to learn a bit more on the topic, because it is your slight understanding which allows you to think it can be bent into some sort of compromise. It can’t. Not that we don’t wish it could be, but it is what it is; where ideas like the Fair Tax are based on principles of expediency, Austrian theory represents scientific conclusion based on reason. It is not partially true or partially correct; it is no more an ideology than is one’s belief in the theory of gravity. As such, it is futility to attempt to dilute the conditions it prescribes (meaning, individual liberty) for the purpose of constructing any type of consequentialist compromise. It should not, therefore, be so difficult to understand why there are those who are unwilling to do so – it is our contention that any such compromise is inherently illogical.

Liberty is not an elective feature in Austrian economics; it is not just that we may prefer to live in liberty, in fact, such a desire is immaterial. Rather, liberty is simply the fundamental prerequisite for the healthy economic functioning of a society. Fair Tax does not address this. Not only does it start out by establishing a bona fide welfare state, it cares not whether individuals are coerced into funding government (of course, the former requires the latter). As such, it is guaranteed to fail, ultimately, and in ways not so dissimilar to those inherent in the current system. It is therefore, hardly a thing to be desired. It is the Austro-libertarian contention that, though (thankfully) the market is able to bear even a quite high level of government intrusion and intervention, coercive action in general necessarily destroys the market’s ability to determine price; this leads to an unavoidable breakdown. Fair Tax (or any other coercive tax scheme) does not address this, it merely shifts around the damaging stimuli – there is in fact no possible, or even useful, compromise to be found here.

As to your charge that we are not interested in proposing realistic solutions, may I direct your attention to my previous post. Having been in business for years and having had the pleasure of dealing with sales taxes, it is my opinon that the Fair Tax would be functionally no better than what we have now, and in many repects, likely to have even worse effects as regards state intervention in general, its distortion of the price mechanism, and also of the people’s general awareness of the real level of their taxation. I prefer, therefore, to pursue what I see as being a more correct and more productive solution.

Chris Long April 8, 2009 at 3:04 am

JD, you & others could write a book on “Missing the Point”. The sequel would be “How to Avoid a Topic of Debate by Cherry-picking Selected Ideas From Another’s Argument, then Changing the Premise to Fit Your Own Message & Building/Sustaining a Loosely Related Argument by Rehashing Talking Points That Were Never in Dispute”. Truly remarkable. Of course, its amusing to see that the one point you take in context is the one where I acknowledge that I lack an experts’ understanding of advanced economic issues & of the Austrian school…as if that bolsters your argument. Well, I may not be a fireman either, but I could certainly tell you if something were on fire.

As for your alternative, it’s laughable that you think it’s actually a realistic and productive solution. What you suggest is good in theory, but it ignores practice (gee, that really is a theme around here). It’s too impractical to be realistic, & slow-moving to be productive. You would essentially replace a war on one front with a war on thousands of fronts. What century were you expecting an ROI on that anyway? Heck, would America still exist by then? Although, what am I thinking? I’m just too much a novice to understand, let along question, your reason-based, scientific conclusion(s).

Paco April 9, 2009 at 9:46 am

Chris/Bob/FairTax Supporters

It seems we are beating a dead horse. The pseudo libertarians on this thread who can’t think conceptually and insist on maintaining the status quo are either opposition trolls or people who don’t know the difference between strategy and tactics.

I don’t think I have read a more well thought out, reasoned, and eloquent response to the trolls than yours, Chris.

BTW, a couple more comments from me and then I’ll be moving on to more productive efforts:

(1) Tim Kern — “several problems with logic?” Please. Try to construct a logical syllogism around even one of your statements.

(2) JD, I don’t believe you have “been in business for years” as you state — at least not as an owner. Too much of your rhetoric betrays your lack of understanding about how the current system affects businesses.

Scott D April 9, 2009 at 11:07 am

Paco,

Pseudo-libertarians, nice. I had decided to stop responding to you until you said that. You who are willing to employ the coercive power of the state upon me, to fully support the power of the state to tax up to and above the huge amounts it already takes. You won’t demand a tax reduction as part of the bill because you know (and I agree) that it will doom the bill to failure. What does that say about the efficacy using state power to advance libertarian ideals?

I think that your heart is in the right place, and I’m sure that you believe that you have examined this subject logically and thorougly. I can see that it is very frustrating for you to encounter resistance when it all seems so simple. Surely I must just be ignorant, to reject so perfect a plan?

On the contrary, I have read articles both from fairtax supporters and from other sources that raise critical questions about many of the numbers that fairtax supporters claim. For example, the Treasury Department claims that the cost of the prebate program will be much higher than the $485 billion that is estimated by fairtax supporters, and will be closer to $700 billion. The reason I do not bring up these objections is that I feel they are (you guessed it) irrelevant to the real point. Once you’ve conceded to using the coercive power of government to make societal changes, you are stuck living with all of the little inefficiences, inconsistencies, and excesses of government power.

As it stands, I feel that the fairtax is, in spirit, enough of a potential threat to government power that it won’t pass. However, should it start to gain support, it will be corrupted by the political process and become something different altogether. Remember the Medicare pharmeceuticals bill? Remember how that monster was sold to the public?

You ask what people such as myself–who obviously are big layabouts if we don’t support the fairtax–will do to advance the cause of libertarianism. We will do what we have been doing: develop and spread libertarian ideas.

Herb Whitson April 9, 2009 at 8:03 pm

The article was very interesting but failed to mention five key components and surmise why we are debating it in the first place.
1) The first being the billions of dollars spent annually in compliance costs of taxation. This is reported to be 65 billion to 200 billion depending on which authority you read. Any tax other than the FairTax still has compliance costs and does nothing to eliminate the IRS which in turn can still be used by congress to reward or punish.
2) The second is addressing the corporate tax which at 35% is the highest in the world. The reported 13 trillion dollars (who knows the real figures) that would come back to America and create jobs is not relevant under any other plan than the FairTax.
3) The third is under the Flat Tax you have no personal control of your taxes as you pay a set amount per individual. Under the FairTax you control your taxes. If you have been frugal all your life and by “used” versus “new” you pay no taxes. Anything that you spend over the poverty level is totally in your control.
4) You don’t even come close in reporting how the “empty lockbox” of social security will be covered. The Flat Tax does not address this issue but The FairTax does.
5) The Flat Tax does not cover illegal immigrants, the underground economy, or foreign visitors. The FairTax does in that they all are consumers and will pay their share.

Sorry, “we the people” let the Federal government into the hen house! A government who has the most employees, owns the most land, has the most buildings, the largest bills in the world, and yet produces no commodity other than the ability to tax its people. If I “must” pay, I choose the FairTax way!

JD April 10, 2009 at 2:45 pm

@Chris Long: accusing others of missing the point is simply diversionary when they have not done so. I specifically addressed the main libertarian issues with the Fair Tax, i.e.:

- it officially institutionalizes a welfare state
- it collects taxes by means of coercion

You choose not to address these issues, and instead embark upon yet another sarcastic rant which, while lacking nothing in the way of verbosity, offers no substance. You write off my example proposal, which represents a useful tactic, by claiming it to be unrealistic. You then admit that it’s not actually unrealistic, but that it is unattractive because it has, as you put it, a bad ROI, time-wise. Well, that’s your opinion, and you’re welcome to it; just don’t expect everyone to agree with you, especially in a forum where the principle of laissez faire is considered to be an absolute prerequisite for the proper functioning of any imaginable socio-political arrangement.

I do not hold a low view of the Fair Tax just for fun, or to annoy you; I consider it to be yet another in a long line of arbitrary, oppressive, and fundamentally-flawed ideas. If you do not wish to address this contention, so be it, but do not expect libertarians to advocate for a proposal which, while more novel in its formulation, is still diametrically-opposed to the very concept of individual liberty.

@Paco: your odd claim that those who do not approve of the idea of the Fair Tax are ‘pseudo’ libertarians only shows that you have a gross misunderstanding of the term libertarian. Also, though it may seem inconvenient to you, I have been self-employed most of my life, and have been involved in several different enterprises, either as owner or partner, during this time. I am painfully aware of the burden imposed by the current tax system, and I’ve spent (read: wasted) much time becoming adept in the art of tax avoision. This being the case, it just happens to be my opinion that something like the Fair Tax represents nothing more than a lateral shifting of the burden – it has its own set of issues, and I’ve not even remotely been convinced that those are actually preferable to the current set. As I said, I tend to think that some of its effects hold the potential of being much worse.

It seems that the Fair Tax is appealing mostly to people who’ve spent the entirety of their life on the customer-side of the counter; from that point of view, it could seem to make alot of sense. But this is a narrow view. I am not concerned whether it would possibly result in better conditions for me personally; there are many political arrangements which might accomplish that, and I don’t support them either.

@Herb Whitson: I hear you, but I think that to some degree, you have rose-colored glasses on.

1) This expenditure does not go away with any alternative tax scheme, it is simply shifted to a different group. Collecting x-amount will always cost x-amount.
2) What makes you think these funds will not ultimately be collected from the citizenry? Again, it is just a lateral shift in collection from individuals via their 1040s to another point. You think you can ‘opt-out’ but you can’t; the more people that do, the higher the cost on the activity that you still need to undertake. Government will not accept a reduction in its size simply because you decide not to spend your money.
3) This is already the case in the current system, where it is called the standard deduction.
4) No plan can account for this shortfall; we will pay for it, though the burden will be adjusted downward by further raising the retirement age and diluting the value of promised payouts via inflation.
5) These groups can continue to do business just as illegally as they do today; the Fair Tax does not reduce the burden on the system which they represent.

To present a scheme like the Fair Tax as some kind of cure-all for society’s tax ills to be willfully near-sighted; individual liberty is the only true antidote. In the meantime, trading oppression A for oppression B may make some people feel better about the situation, but that is all it can do.

Ryan Murphy April 11, 2009 at 9:00 pm

OK, I’d thought to write something on this when Mr. Vance’s article arrived in my inbox, but then I read that some of the people who had already posted had basically covered my thoughts, so I did not post, but it’s still on my mind, so I guess that means that I need to post anyway.

I understand that Mr. Vance’s article basically restates some of the ideas in Murray Rothbard’s “For a New Liberty” and that the FairTax and the flat tax (I guess, I don’t know much more than the broad concept of the later) apparently go against libertarian philosophy, but unfortunately Mr. Vance only tells us that both of these ideas are wrong and fails to provide us with a solution that he *would* agree with.

So what we’re left with is the current income tax system that acts as a drag on our economic activity and that everyone agrees is cumbersome and unweildy to the point of being basically unknowable in all of its particulars. I’ll add that our US Supreme Court found the income tax to be unConstitutional in 1895, which necessitated the passing of the 16th Amendment to the Constitution so that we could continue to be taxed unConstitutionally (there is some debate as to whether the 16th Amendment was properly ratified by the states and may not even be legally valid).

Without offering a method of taxation that he agrees with philosophically, Mr. Vance leaves us with the presumption that he prefers that WE THE “CREATED EQUALLY” PEOPLE be FORCED to pay tax at UNEQUAL RATES just for working and not waiting on handouts from Uncle Sam on the first and fifteenth of every month instead of ALL of WE THE “CREATED EQUALLY” PEOPLE being taxed at EQUAL RATES and being able to CHOOSE how much tax that WE pay by CHOOSING what WE buy beyond the poverty level.

How does that square with his philosophy? Not very well either, I imagine.

So, until presented with a more philosophically pure method of taxation, I choose the philosophically impure method of taxation that treats ALL of WE THE “CREATED EQUALLY” PEOPLE EQUALLY instead of UNEQUALLY and UNCONSTITUTIONALLY like our current system does.

Don’t get me wrong. I don’t like our leviathan state either, but if you’d like to reduce its size and level of expenditure, then make a nuiscance of yourself with your Representative and Senators, don’t discard a method of taxation that treats ALL of WE THE “CREATED EQUALLY” PEOPLE EQUALLY just because it is philosophically impure (no more impure than the current unConstituional income tax that we have now, and at least it doesn’t have the top 10% paying ~70% of the tax burden).

I anxiously await Mr. Vance or others to present a philosophically pure method of taxation.

(Incidentally, my state of Florida has had a state sales tax which provides ~75% of the state’s revenue INSTEAD of a personal income tax since 30 September, 1949, so I think that one *just might* work on a national scale).

Pat April 13, 2009 at 7:47 am

The idea that America is free to elect public officials who are in office as representative elected, not sovereigns, defies the concept that government is free to sell off Constitutional rights to the highest bidder – through Communism or Capitalism.

Forcing public officials to remain loyal to their office is the method by which Americans can get taxes they respect, and government they enjoy.

Anything else is deceptive, false advertising, or government coercion.

Paul Buede April 15, 2009 at 10:10 pm

I like your piece here… See one I blogged some time ago… I think the real solution is what I present at the end. http://freelanders.blogspot.com/2005/09/fair-tax-sales-tax-value-added-tax.html

Ryan Murphy April 16, 2009 at 1:37 am

Paul,

Thanks for including the link to your post.

I see the appeal of the final tax in your post about the states funding the federal government and wonder how we might go about getting it implemented.

(Although judging by the footage of the FairTax signs at the various “Tea Party” demonstrations today, I think that the FairTax might have a good head start, but anything would be an improvement over our current unConstitutional income tax system that required an Amendment so that we could continue to be taxed unConstitutionally).

Jon Kines April 16, 2009 at 8:20 pm

By your reasoning since the Fair Tax is imperfect we should sustain the far more horrible system that we have now and quite frankly it’s an absurd assertion.

No legitimate free market capitalist can fail to see the gain of eliminating taxes on investment entirely and replacing it with a single consumption tax at the retail level. Furthermore, your 30% claim is false as this is an inclusive, not exclusive sales tax. However, given that you fail to see the benefit to eliminating capital gains taxes entirely, it’s not surprising that fail to understand this difference either,

Would replacing our current system with no taxation be superior? Obviously. However, to use an analogy you’re logic is basically “since I can’t afford a Rolls Royce I see no reason to trade in this Edsel on an upgrade.”

Any step toward a more free economy, no matter how small, is a positive step. Given the direction our nation is currently headed this should be patently obvious. Your refusal or inability (I’m honestly not sure which) to see the benefits of a viable improvement in our tax code is hubris pure and simple.

Jon Kines April 16, 2009 at 9:18 pm

As for your repeated assertion that removing the current embedded tax on all goods and services will have no effect on pricing, you either believe that taxation has no effect on price structure or that market competition is incapable of having an effect on price structure or both. All of these are inconsistent with not only empirical evidence but Austrian theory.

Furthermore, the black market, of which you claim will grow exponentially upon implementation of the Fair Tax, is alive and well under our current income tax system, not to mention a surfeit of investment capital sheltered overseas.

The Fair Tax will add the underground economy to the tax pool each time they approach a cash register and a great deal of investment capital will return to the States.

Again, I’m not claiming that this is a perfect system by any stretch, all taxes are bad taxes. However the superiority of the Fair Tax to our current system is patently obvious.

Mark Douglas July 14, 2009 at 9:00 am

Fairtax would work great if we cut federal spending by 70%. But unless you cut spending drastically, Fairtax is kind of a fairy tale.

Fairtax math is based on collecting taxes from people — we know that.

But what is less apparent — what is hidden — is that Fairtax isn’t just a tax on people. Its a massive new tax from the government — every city, every state, every county, and the federal government would be forced to pay massive taxes on their own spending.

Medicare and the military, for example, would have to pay this tax too, on every penny of its spending. So would every citie, every state.

Yes, if you could just tax people 23%– maybe the plan would work great. But that’s not the Fairtax plan. The Fairtax plan is to get almost half its revenue FROM government.

While this may seem wonderful to some — the sad truth is, cities, states, counties would have to get that money in order to pay it. Fairtax has never listed how much each city would have to pay, nor how much each state.

Nor do they list how much the military or medicare would have to pay. If this plan is so transparent – this kind of information would be easily available. Yet even the fact that cities and states would have to pay it, is couched in clever glib phrases about why government should pay taxes.

This tax on government is by far the biggest revenue stream Fairtax depends on — as Boortz says “The federal government itself will become a MAJOR taxpayer” Page 148 The Fairtax book.

And it’s not just the federal government. Its all government at all levels on all spending, except spending on education.

Why would Fairtax hardly mention this largest revenue source? Why is it that no mayor state legistlator or governor has any idea Fairtax is based on this massive new tax?

Don’t believe me that mayors and governors don’t know about it — contact them. I haven’t found any that yet know.

If a play is supposedly “transparent, open, and honest” –why wouldn’t the people reponsible for pay these massive new taxes have any idea? Seems to me if this part of the plan were transparent –mayors and governors would know.

Rob Kirchoff September 22, 2009 at 4:16 am

In principle, I agree with the arguments laid out here. I don’t like taxes, period. But they are here, and like it or not, Libertarians do not control the government. Point of fact they control very little of anything. Sad truth, but truth all the same. That being said, I believe that the libertarian dream can come true, but it’s unlikely to happen by being overt, radical, and absolute. Should the government tax us? No. But it does and it will. Under the FairTax, the advantage is that the taxes that do occur are the least evil. More importantly, taxation would become transparent. This point is why I still support the FairTax, even after reading this well-written and well-argued article. People don’t see what they’re throwing away. Their paychecks have taxes taken out automatically, the majority of people don’t shoulder the burden they should, and worse yet, the taxes on non-consumer entities obscures taxes entirely by shifting costs onto consumers that they can only assume to be operating costs. This transparency would be a good thing. Unfortunately, yes, the FairTax would require a complex Constitutional amendment, perhaps more than one, banning all other forms of taxation. Obviously it would be preferable to do away with them entirely, but radical, instantaneous change is usually only accomplished through violence, something we libertarians cannot condone. Therefore, we should endeavor to limit coercion, or at least make it more obvious to the common, and therefore easier to eliminate later. As far as budget neutrality goes, why would you complain about that? If the alternative code produces massive shortfalls, either the taxes would have to go up, or spending down. And if everyone could see the bill for the “services” the government so kindly “provides” us every time they buy a Big Mac or a Ford Mustang, something tells me they’d be less than pleased with the idea of more of their money being taken away.

paul wood March 18, 2010 at 12:58 am

Forget everything you know about the Fair Tax: If it’s an uphill battle, whether it’s “fair”, 23 or 30%, prebates, state governments.

The REASON the Fair Tax will work is that it’s the only way to get people involved: to ignore (for a minute) what Tiger Woods or Britney Spears are doing, what happened on “lost” last night or some stupid new song everybody loves. They’ll forget about all of the crap that doesn’t matter… when they hear that the government is going to raise taxes by 5, 10, or 15%.

They’ll get out in the streets and pitch a bitch!

Not being able to hide taxes, politicians will have no choice but to get their act together. That’s how we’re going to control government spending and THAT’S why the Fair Tax is important!

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