A Case for the Fair Tax Plan

© 2010 Rick Adamson

By Rick Adamson 6.6.10

The fair tax plan is a consumption tax. It is not an income tax or a payroll tax. It is not a VAT tax. It is like a National sales tax. It applies to consumption not income. It would replace all taxes currently being taken from workers’ pay. Certain items like food and other necessities would be exempt so as not to over tax lower income people. Every workers' take home pay would increase considerably. It would also eliminate the corporate income tax, the self employment tax and essentially all other taxes based on income.

See http://www.fairtax.org/site/PageServer?pagename=about_main

Arthur Laffer, the famous economist, has estimated that a consumption tax of from 10 to 12 percent (applied to businesses and individuals) could replace all of the Federal Government’s revenue needs. It would be inherently simpler, eliminate to need for most IRS employees and be fairer (because workers are currently subsidizing the government for taxes not being paid by those involved in the underground economy). It would eliminate the need for millions of people to file annual income tax returns.

Following are a few of the problems with the current situation:

• The IRS budget is $12.5 billion per year and it has 100,000 employees. It is the largest police force in the world.

• Congress is constantly complaining about the so called “tax gap” which it estimates to be $345 billion each year. These are taxes that Congress thinks (although they really do not know) are due the Government but are unpaid.

• The underground economy is estimated to be 13% of GDP by the Washington Times. This amounts to $ 2.5 Trillion in market activity that is untaxed. After all, the drug dealers and prostitutes spend money but the do not pay income taxes. They would pay a consumption tax under the Fair Tax plan.

• It costs the American people and businesses $265 billion each year to attempt to comply with the IRS’s rules and regulations as well as up to 6 billion hours of labor to do so.

• Congress is corrupted by special interests who make contributions in exchange for favors.  Many of the favors end up in the tax code. This has resulted in the current incomprehensible mess of deductions, exemptions and social / welfare provisions that are in the current code.  The latter should be administered by the Department of Health and Human Services or another department. Not the Department of the Treasury.

All of these problems would be eliminated by the Fair Tax plan.

Alexander Hamilton, the father of our constitution said:

“It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. . . . If duties are too high they lessen the consumption—the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens, by taxes of this class, and is itself a natural limitation of the power of imposing them.”

I think Mr. Hamilton would have supported the Fair Tax.