The Fallacy of the Fair Tax

No self-respecting liberal - and no self-respecting progressive - should be enticed by the "fair-tax" proposal floating around in the political debates. Oh yes, it's appealing to think of getting rid of the IRS and the incredibly convoluted tax structure we now have - but there are ways of fixing things without hammering the poorest of the poor in this nation.

Here's what the fair-tax proposal entails (from MSNBC)

Under the plan, Americans would pay only one federal tax, which would be applied to just about everything they buy: not just the goods people buy at stores on which most states assess a sales tax, but nearly all services, including health care and insurance, the purchase of a new home or rental of an apartment, even things like a teenager mowing a lawn or baby-sitting for a neighbor.

Now, it doesn't take a genius to realize that the poor in this country will be paying sales tax on 100% of their income - they spend everything they earn on essentials - food, housing, clothing, etc. The wealthy only spend a portion of their income on taxable items - they spend some of their income on investments (Certificates of Deposit, bonds, stocks, etc., which you will note are missing from the list of taxable items in the box above.) Which means the wealthy are taxed on a much lower percentage of their income and therefore they will pay a much lower tax rate. Which is why the rich (like Steve Forbes) LOVE the fair tax...poor people bear the brunt of the cost of running the country.

Here's more on the fallacy of the fair-tax from MSNBC...

It is not the same as a normal sales tax, however. Under the proposal, the tax is included first. That means a $100 item would cost $130, or 30 percent more. The plan’s supporters say that works out as a 23 percent rate because $30 is 23 percent of $130. Americans would no longer face federal withholding from their paychecks. But most analysts say the tax rate necessary to replace current federal revenues, under any likely plan, would actually need to be much higher. By some estimates it could add 40 percent, if not more, to the cost of living.

Now, having studied math in school quite extensively, I can tell you that this is just plain quackery of the highest order. A percent is calculated based on the price BEFORE the tax is added, not after. It is false arithmetic - sort of like telling you that 2 + 2 = 5 and expecting you to agree just because they say so.

But even more importantly, they are ignoring all of the state and local sales taxes most of us pay. Here in NY State, we are already paying an 8% and up sales tax - this would bring the sales tax north of 38% (best estimate) and maybe close to 50%!!!!

MSNBC adds this...

Whatever the rate, critics say, a steep federal retail tax, piled on top of existing state sales taxes, would encourage widespread illegal tax evasion, black market transactions and other forms of cheating, creating a cycle that would require even higher tax rates.