I’m all for simplifying our tax code. There really is no argument against doing so generally. The argument is over how one might do so. In fact, implementing simplification is where many people simply throw their hands in the air and give up. I might be in that camp. In the hopes of swaying me into action, a colleague put Neal Boortz’s The FairTax Book in my hand. The book is an apologia for Boortz’s (and Congressman John Linder’s) FairTax movement. Essentially, the FairTax wants to replace all federal taxes–corporate, income, withholding, etc.) with a 23% retail sales tax. This definitely qualifies as simplification of the current system. Boortz claims that it is revenue neutral versus the current system (meaning it would reap similar revenue intake for the federal government)–a claim that I can neither affirm nor deny. (I’m not sure this really even matters, really. The 23% can always be increased to bring in more tax revenue if politicans desire. I’m not even going to suggest that the number would ever dip below 23%.)
Being somewhat friendly to the FairTax, my major concern has to do with actually implementing it. Sure, we spend tons of time, energy, and resources complying with the current system, but the transition seems much more difficult and awkward that Boortz lets on. For example, he cites to studies (maybe just one) that show that the FairTax would lead to a 22% dip in prices when built-in taxes are removed from the price of goods. I agree that there would be a price decrease generally, but it would not be uniform across industries nor would it occur instantaneously with the introduction of the FairTax. (This is largely a short-term problem, but this is what people focus on.) Also, Boortz makes great noise about how much corporations spend complying with the current system. What happens to all of the people whose careers are based on such compliance? Again, maybe this is a short-term problem as people and corporations retool.) I’m all for changing the system, but I’m not sure the FairTax is as easy as Boortz makes it sound.
I really enjoy Thomas Mallon, and I’ve been meaning to read his 2003 book Mrs. Paine’s Garage and the Murder of John F. Kennedy for some time. Much more historical than his normal historical fiction, Mallon examines Ruth Paine’s connection to the assassination. Paine first met Lee Harvey and his Russian wife Marina in early 1963 and had Marina and the Oswald children living with her on November 22. In fact, Paine had mentioned to Oswald that there was an opening at the Texas School Book Depository and, unbeknownst to Paine, Oswald was keeping his rifle in her garage. After Oswald was apprehended, Paine became a lightning rod as conspiracy theorists have tried to connect her to part of a CIA plot to kill JFK. It’s a quick 200-page read and well told, though it’s not particularly enlightening.
Deadspin is a great sports blog. It’s editor is William F. Leitch, a midwestern boy who has made it big in NYC. But the journey from student newspaper writer in southern Illinois to successful New Yorker was full of missteps and nearly-never-weres. Fortunately, Leitch was writing columns detailing this mess–to great enjoyment for readers. Those columns were collected into a book aptly named Life as a Loser. A very funny read even if you aren’t from Mattoon, Illinois.
I can’t help but comment on the Fair Tax. The 23% rate given in the book is misleading. It is “tax inclusive.” For example, let’s say that I buy a $100 item and pay $10 in sales tax. Most people would call this a 10% tax. But if we calculate the tax a la Fair Tax, it would be a 9% tax (10 is 9% of 110). Once one backs the tax out of the Fair Tax calculation, the rate is actually 32%.
If this were the only flaw with Boortz’s pitch, perhaps the proposal would still be viable. But it isn’t. The Fair Tax contingent claims that the sales tax would raise revenue comparable to the income tax. This simply isn’t true. The source of the claim is this: the Fair Tax calculation includes sales taxes paid on government purchases in the revenue estimate. If we remove this circular cash flow from the computation, the revenue estimate changes radically. A couple of government committees have done revenue estimates sans government purchases and have concluded that the actual tax rate would have to be in the vicinity of 57 to 70%.
This rate is too high for a sales tax system. Why? As a percentage of income, wage earners will pay a much higher rate than owners of capital. The tax will be grossly regressive and will burden ordinary workers to a much greater degree than the current system. For this reason, the tax isn’t “fair” at all.