Attacking the Fair Tax: Naivete

Usual caveat: While I oppose the Fair Tax, that doesn’t mean I support the current system. I would just prefer a VAT or a flat tax.

I’ve attacked the Fair Tax because it falsely promises a big pay hike for Americans (a claim Boortz himself has withdrawn) and because I think the prebate would be a disaster. But I’ll hit it again because I need the blog traffic from the Fair Tax Movementarians responding.

One common argument for the Fair Tax over the flat tax goes like so:

We tried a flat tax with Reagan’s tax reform. And it wasn’t flat for long. Congress immediately began revising the tax and making it hideously complicated again.

This has two problems. The first is factual — the 1986 Tax Reform did not create anything approaching a flat tax. It simplified the taxes but not very much, as anyone who owns a business could tell you. It created all kinds of tax incentives and breaks. Claiming that the 1986 Tax Reform Act was the equivalent of a flat tax is like claiming my cat is a hippopotamus. Yes, they are both fat mammals. The similarities end there.

The second problem is naivete. The Fair Taxers assert that the Fair Tax will start simple and stay simple. That Congress will be unable to work all kinds of strange complications into it.

This is total garbage. Just to list a few things Congress will try to do with the the Fair Tax:

  • The first effort will be to raise the tax rate and spending allowance, to shift more and more of the burden onto “the rich”.
  • The second effort will be to abolish the uniformity of the tax rate. Democrats will claim it is unfair to tax luxury yachts at the same rate as groceries or Porsches at the same rate as housing. That the prebate supposedly eliminates the tax on necessities will be irrelevant because no one will think that way. They will see the prebate as a gift of government, not a refund (especially if Dems raise the spending allowance). Moreover, do you really think Mike Huckabee — a huge supporter of sin taxes — will let the Fair Tax through without demanding higher tax rates on cigarettes, alcohol and porn? You do? Do you know that I have access to $40 million in Nigerian banking funds and just need your help to get them into this country?
  • The third effort is more subtle. It will only be a matter of time until certain businesses demand special treatment. Our absurd system of farm subsidies is facing deserved assault from Free Trade agreements. How long will it be before the farmers acquiesce to a reduction in subsidies in return for a reduction in the Fair Tax on food? How long until steel manufacturers demand a lower Fair Tax rate on domestic steel to prop up the industry? How long until American auto-makers demand a higher Fair Tax rate on imports?
  • Granted, the potential for political abuse is a little lower and more transparent than with the current system. But to sit here and claim that the Fair Tax will be magically immune from the Washington need to endlessly tinker and update and improve is incredibly naive.

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