Eventually, if an idea is simple and elegant enough, it will triumph. Consider HR 25, the “FairTax” bill. Rarely, if ever, have the words “brilliant” and “bill” earned the right to appear together in a single sentence. But for once we have a policy option that a) doesn’t require voters learn complicated economics, b) genuinely benefits everyone, and c) should be able to get support from both parties.
The elevator pitch behind this idea comes in a series of questions: Would you like to stop paying income tax? Would you like to have the IRS off your back forever? Would you like to see people stop manipulating the tax system unfairly? Would you like to see the economy boosted and low-income families helped all at the same time? We all want these things. And that’s what the FairTax provides. Skeptical? Read on.
Here’s the idea: First, Congress must repeal the Sixteenth Amendment, which says the government can take taxes from your income. Or anybody’s income for that matter (businesses and individuals). Then, Congress establishes a consumption tax of 23 percent whenever you buy something new. (23 percent? “Ah, the rub,” you may be thinking.)
But the interesting part is, with this new tax, we’ll see virtually no change in the price of the goods and services we already enjoy. That’s because, according to economists, everything we buy already has hidden taxes embedded in it (nearly 23 percent worth). Our favorite companies pass along the costs of their income taxes — including paying bean-counters, consultants, and the taxes themselves — onto us consumers.
Of course, with the FairTax, there’s no more money taken out of our paychecks. We see 100 percent of every dime we earn. Maybe we’ll save it? Tax free, plus interest. And for people who live below the poverty line? They get a rebate each month so they effectively pay no tax at all.
Can you imagine the savings to our economy? To ourselves?
There will be no more IRS. Yes, this expensive bureaucracy of nearly 100,000 employees will have to be reabsorbed by the economy. But these are all talented people. They’ll find work — particularly since hundreds of billions of offshore dollars will return to the U.S. Why? Currently, people avoid tax collectors by sticking their money in Swiss or Cayman banks. With the FairTax, there’ll be no need to hide their money from the taxman. We’ll see most of those hundreds of billions repatriated. Besides, the IRS is an unproductive entity that causes dead-weight loss. Jobs for the sake of jobs cannot be the justification for keeping them around.
There will be much more spending money in people’s bank accounts gaining interest. Even people who expect a tax-return check every April cannot hope that the money that is removed from their pay is gaining interest for them. Now it can. And again, if people decide to spend their money instead of saving it, they will have more money to spend and prices will be no different.
Do you know how much time, money and effort is lost just paying our taxes? Money we pay to tax advice agencies like H&R Block? Or how much time we spend beating our heads againstall those forms? Heartache we spend wondering if we’ll owe? And just think of how much waste companies put into this stuff — the costs of which we all pay. The FairTax just seems like a no-brainer. Consider these additional benefits, according to the bill’s sponsor:
» GDP will increase by almost 10.5 percent in the first year.
» Real investment would initially increase by 76 percent relative to the status quo.
» Exports would increase by 26 percent initially (and would remain more than 13 percent above that of the current system).
» Real wages will increase.
» Increases incentives to work.
» Interest rates will fall 25 to 35 percent.
One may be skeptical of these numbers, but once folks fully understand the FairTax proposal, the only people who will oppose it are those who are either a) benefiting unfairly from the complicated tax code, or b) the politicians that serve and are served by them. Politicians and special interests. As George Will writes: ” ‘K Street’ is shorthand for Washington’s lawyer-lobbyist complex. It exists to continually complicate and defend the tax code, which is a cornucopia from which the political class pours benefits on constituencies.”
Some will try to argue that the FairTax will somehow hurt poor families, but the evidence just doesn’t support that claim at all — particularly when we consider the progressivity of the “prebates” — i.e. those monthly checks poor people will get so they can buy basic needs tax free (up to about $24,000 per year of tax-free purchases for a family of four).
According to Congressman John Linder, R-Ga., sponsor of the bill, “the FairTax has attracted more co-sponsors than any other fundamental tax reform bill introduced in the House of Representatives.” We should lament the fact that Linder is a Republican, because this is an idea that is maturing. Like all good ideas, partisanship could kill it year-after-year until we finally just get fed up — either with April 15, a complicated tax code, government waste, or a shackled economy.
Max Borders is managing editor of TCSDaily.com.
