FairTax: Why I love it, and why it will never pass

"FairTax" is the common name of a bill in Congress that essentially makes the IRS obsolete by replacing the income tax with a national sales tax (roughly 23%). The equivalent of the "standard deduction" under FairTax is the "prebate", a monthly check (or direct deposit) to all taxpayers, intended to offset the taxes you're paying on food and other necessities. For me, I'd be getting a check for $606 every month, *and* not paying income tax!

"How can the government just give out money like that, it's going to be hugely expensive and create a welfare state! It's socialism! Ridiculous!"

This is a great example of congressional "smokescreening", scaring people with statements that are just completely wrong. I'll get back to why congress-people do this in a minute.
The FairTax was designed by smart people to be revenue neutral, meaning the federal government doesn't make more or less money with it -- only that they collect it differently. Here's the deal: unless you're poor, at the end of the year, the IRS ends up with a huge wad of your money from income taxes. They're going to under FairTax too. But for poor people the gov't instituted the standard deduction, a way to keep poor people from having to pay any federal taxes by not taxing them on the first X dollars they make ($10,700 in my case). Under FairTax, the prebate does the exact same thing, except people are getting money as a check in exchange for what they're expected to pay at the cash register, instead of have a little less withheld in their paycheck. They expect a family the size of mine sitting right on the poverty line would pay roughly $606 in sales taxes during a month, and they're returning that amount to me -- that's all.

Why I love it

Oh, so many reasons!

• 1040-wha? Tax season is a painful, stressful time for the whole country. Imagine if that were just gone. Gone. Millions of hours returned to the people! Thousands of H&R Block employees and other tax accountants freed to work on things that actually make our lives better -- like knitting sweaters! (Love you, Shells! =)


• Tax evaders actually have to try. Tax evaders are everywhere now -- tons of people just don't file at all. Then we have to spend taxpayers money chasing them down and prosecuting them, paperwork and courts and wasted time and happy lawyers. Under the FairTax, there is no dodging, buy something at the store and you pay taxes on it. Now some say the FairTax will create a huge black-market -- but we already have sales taxes, how's that black market look now? Besides, how would such a black market work anyway? All large transactions are tracked, not like people are buying thousands of cars from Ford and selling them on the black market so people can dodge the taxes. Sure some shady dealers would pop up, but enforcement of taxes would still exist -- it would just shift from chasing mostly careless or otherwise over-burdened individuals to chasing truly dishonest businesspeople trying to make a whole living dishonestly. A *much* easier job, for sure.


• Illegals penalized! Instead of illegals squeaking out of paying taxes by taking jobs paid under the table, the illegals would have to pay sales tax for everything, *and* they would *not* get the prebate! Those evading the system would have it worse! Much lower incentive for them to come here illegally.


• No more taxes on business. Huh? Aren't they the ones with the money? Yes, but they're also the ones creating all that value that you and I are after! Who made that shirt you're wearing? And that computer you're staring at? The economy is a bunch of businesses making things that make our lives better, and giving people jobs. If you burden that process you just slow it down and make it less competitive against factories in China.


• Savings and gardens. Grow your own food? Pay no federal taxes! Saving your money? No taxes there either! Let's incentivize those two things for a change.

What's not to like?

But it will never happen

"Huh? Why not, it sounds like a terrific idea!"

Why? Because Congress would have to pass it, that's why.

My incredibly smart sister pointed out that Congress wields a *lot* of power. Some in lawmaking, some in regulating commerce, etc., but a huge amount of their power comes from the budgetary process. You see, Congress has but one real goal, and that is to get reelected. How? By swinging as much of the federal budget as possible into their own state and constituency. Riding pork into the federal budget is one way, but another equally powerful way is via the tax *incentives* they give. "Let's buy the impoverished vote by eliminating their taxes, the homeowner vote by not taxing money paid on mortgages or charitable donations, the business vote by not taxing business expenses, etc. etc. etc." Yuck.
You see, if they eliminate their own ability to decide how the money comes *in* by enacting the FairTax, they'd be voluntarily stripping themselves of half their fiscal power. Where would they get the incentive to do that? Nowhere, that's right.

So now we're back to "smokescreening"

Cover the whole FairTax thing with vague scary political buzzwords ("welfare", "regressive", "cutbacks", etc.) to keep the populace from seriously considering it, and America stays stuck in the same mudhole we've been in for 95 years.