But while the opposition is to be expected, the sloppiness with which it has been carried out is not. Bruce Bartlett incorrectly claimed that the monthly prebate to offset any regressive effects of the tax would be based on income. It calls for a set amount given to each citizen irrespective of income, varying only in that people with a greater number of children would get more. That Bartlett was unaware of one of the foundational aspects of the plan shows that he may not have even taken a cursory glance at it before leveling his critique. That does not speak well for the op/ed board's diligence, either.
He also wrongly claimed that the plan would add 30% to the price of every house sold. For one, he is using a tax-exclusive rate to gauge the national sales tax, while the federal income tax uses a tax-inclusive rate. If a tax-inclusive rate is implied, so that an apples-to-apples comparison can be made, it would add only 23% to the price of a home (a further flushing out is presented, about ten paragraphs down, in my long repudiation of Bartlett's piece). More importantly, it would only be levied on new homes, which comprise about one-in-four of the residences sold each year in the US.
Awhile back, the op/ed board gave Jerry Bowyer space to criticize the idea. His first two paragraphs are substantivally devoid:
If talk show hosts ran the world, we'd have a national sales tax. We'd have no immigration, and we would have long ago carpet-bombed the entire Middle East. We'd also have something called "fair trade," which means no real trade at all.This supercilious smearing is not meant to win over those previously supporting the idea. Instead, it attempts to intimidate those who may be on the fence or hearing about the idea for the first time. It is a standard tactic employed when a heretical idea is gaining momentum and needs to be stopped before it reaches 'mainstream consciousness'. Those who question the orthodoxy's view on catastrophic anthropogenic global warming, zero group differences, or unrestricted immigration regularly face similarly vicious insults.
But they don't run the world; they just pretend that if they did, everything would be great. I would be a lot more confident that this was true if I didn't know so many talk show hosts. I would be even more confident if they had really run anything of consequence before. But I do, and they haven't.
Parenthetically, Bowyer used to be a radio talkshow host and has called for theocracy in the US in the past (so the word 'heretical' is appropriate enough).
A few points should be responded to:
We could simply declare that by switching from a federal income tax to a national retail sales tax, tax cheating would end, code complexity would be a thing of the past, and illegal immigrants would start paying taxes. And, of course, we'd switch into high economic growth -- forever.Of course proponents do not claim cheating would end. Whether or not the magnitude of avoidance would rise or fall is mostly speculative. Currently, there is more avoidance of income taxes than of sales taxes at the state level (as Bowyer implicitly implies). This is because individuals are largerly responsible for the former and large retail establishments for the latter.
The problem is that none of this would happen. People would simply switch from cheating on income taxes to cheating on sales taxes.
Asserting whether or not that would hold on the national level is conjecture. The IRS estimates that about $400 billion in federal income taxes go uncollected each year (this is referred to as the "tax gap" in accounting parlance). On the services side, the cheating would almost certainly be more problematic than on the retail side, where it is difficult to imagine major retailers like Wal-Mart refusing to collect the tax.
A national sales tax would reverse the inherent advantage illegal immigrants enjoy in the labor market. Paying people under-the-table becomes a non-issue. Income isn't taxed. So paying the iillegal, Pedro, who shows up at the construction site $10 an hour no longer confers an advantage over paying John Smith who has a Social Security card, a residential address, and a accessible background the same amount. Both guys pay the same in taxes--it's forked over when they go to McDonald's for lunch and buy a pack of smokes at the convenience store.
Further, because illegals are not entitled to the monthly rebate that citizens are, they go into the labor market at a disadvantage. When the foreman is deciding between Joe and Pedro, Joe bargains for his wage knowing that he has a check for $300 coming at the end of the month.
Bowyers is incoherent on this point:
The immigrant stuff is nonsense on stilts. Let me ask you this: If they're here illegally, why won't they also buy and sell goods on the black market?If they're here illegally, why won't they also break into your car or rob you at the ATM? The point is not that illegal aliens will somehow stop engaging in criminal activity. It's that employers will no longer enjoy the artificial premium that makes illegal labor so attractive to them now. If businesses find illegal labor less attractive, entering the US illegally becomes less attractive, and the problem is partially ameliorated. Unsurprisingly, that nonsense was all Bowyers had to say on illegal immigration in the entire piece.
The rest of Bowyer's submission isn't much worth reading. He uses the apples-to-oranges 30% figure and fallaciously insinuates it will be levied on everything that is bought and sold, not just new products.
He complains that decisions previously made due to tax considerations will no longer seem beneficial, like Roth IRAs (of course, people with traditional IRAs would benefit as much as the Roth guys would suffer). One-time transition pains would come with a complete overhaul. If the overhaul institutes something preferable though, these one-time pains shouldn't be decisive.
He also brings up questions of gradation--what if I use the internet for personal use but say its for work (business-to-business purchases are not to be subject to taxation)? Uh, what if you do that now? You claim it as a deduction. There's a good chance you slide by undetected. Maybe you're field audited and you get caught. Of course enforcement is still going to be a significant concern.
That the bulk of his piece focuses on compliance concerns does evince the growth in the idea's popularity (HR 25, its legislative embodiment, now has 59 sponsors in the House). As the knowledge base of its readership grows, the op/ed board is no longer able to slip in falsehoods as easily as it was able to in the past (a similar trend has occured on the immigration front, where the board has given up the mythical 44% figure, dropped some of its hysteria over the importance of the Hispanic vote, and stopped asserting that favoring immigration restriction is a minority-held position among the public).
And the WSJ recently let Leo Linbeck, President of the FairTax movement, run a piece to even the playing field a little. Granted, it was during the dead time in between Christmas and New Year's, but it is astonishing that a proponent's voice was even allowed to be heard. Now, if Gigot and company would just let Steven Camarota or Roy Beck have some space, we'd really be getting somewhere!
Primary reasons I see to support the FairTax:
- Ending (and reversing) the wage advantage illegal immigrants enjoy over the native working class.
- Encouraging conservation. The plan hasn't been pushed for its environmental merits, but slapping a 23% premium on new goods relative to used goods will extend the 'useful' life of a host of products and increase second-hand purchasing.
- Relative to the income tax structure, it encourages exports and discourages imports. While US exporters must pay income taxes in the US, their products are also subject to the taxes of the nations they are exported to. Several European countries refund VATs for goods that are exported, and East Asian currency manipulation serves as a furtive tariff on imports there. Why not similarly favor our exporters as the rest of the developed world favors their own?
- It will reward wealth creation and penalize personal expenditures (relative to the current structure). An income tax does just the opposite; Penalizes wealth creation and encourages personal expenditures.
- Businesses and individuals will make economic decisions based on efficiencies that are not distorted by income tax considerations (postponing equity sales into early January that should have been made previously, etc).