Fair Tax

From the Weekly Report of 4/16/07:

I was able to attend an AZ Republican Party dinner recently. The featured speaker was Congressman John Linder of Georgia who spoke on his proposal for what he calls the "Fair Tax."  This is a national sales tax that would eliminate all other forms of taxation -- income, social security, Medicare, capital gains, estate, etc. -- and the Internal Revenue Service.  Consumers would become what he describes as "voluntary taxpayers," being taxed on only what they choose to purchase.  Nothing is exempt, including food, cars and housing.  But every household in the country would receive a monthly check for the estimated amount of tax on necessities.  Congressman Linder states that the hidden taxes in everything that we purchase amount to 22% of its cost; the retail tax to be collected would be 23%.  This seems steep, until you consider that most people pay over 30% of their income in payroll and income taxes.

My question to Mr. Linder was:  if companies are not paying the 22%, why does he believe they would pass that savings on to their customers?  His answer was that many might not, hoping to keep the additional revenue; but over time competition would force prices down.  We would therefore be paying little more for goods and services than we do now and none of the other taxes.

Everyone knows the U.S. tax code is a confusing mess and must be simplified in some way.  I have been a proponent of a flat tax -- everyone taxed at 13-15% of their income, with no exemptions or deductions.  But the Congressman makes a good point that with the "fair tax" the burden of taxation is shifted from income to consumption.  If the government doesn't know, and has no need to know, how much anyone is earning, it won't be tempted to start messing with the tax code again.

It's an interesting concept, but one that I don't see being implemented anytime soon.  But if you come across the book he has co-written or hear about someone who is speaking on this issue, I believe it would be worth your time to investigate.

Here's more information on the Fair Tax that I wrote about above:

http://www.goldwaterinstitute.org/AboutUs/ArticleView.aspx?id=1539