Why the Fair Tax Won’t Work
In theory, I like the Fair Tax idea. I have to say, I find it completely illogical that many people today who earn up to $50,000 a year, end up paying no Federal taxes at all. Why, exactly, should they get away with paying nothing? It simply makes no sense that those in the highest tax brackets pay nearly all the taxes, and everyone else gets off free of charge. We all use the same government, after all. Why should it be free to so many?
But wait, you say, they aregetting thousands a year withheld and sent to Washington, right? Aren’t they paying taxes, then? Well, certainly the lower middle classes are being deprived of a part of their income for most of the year as true and criminal as that is. But, in the end, they are not paying Federal taxes because most of them get nearly all of it back at the end of the year. Washington just had the luxury to have had the use of it (and the interest it might have generated) throughout the year, right up until they send it all back. But it is, indeed, all sent back for many who could afford to pay something.
You don’t have to take my word. Any tax preparer will confirm this fact.
In any case, the Fair Tax idea sounds quite a bit more equitable. Everyone pays something. Further, they can control, to some extent, what they do pay by not consuming when they don’t have to.
Recently, to explain the idea, Fair Tax proponent Doug Patton, puts it this way:
The Fair Tax would replace all federal income taxes. No more federal withholding. No more Social Security withholding. No more Medicare withholding. No more stealing from the paychecks of American workers before they even see it and then pretending to give them a refund, without interest, at the end of the year. No more saving receipts for tax deductions. No more IRS audits. No more April 15th.
Sounds great, right? If this were the method of taxation, I’d go for it.
Unfortunately, we have one little thing that dooms the fairness and the equitable nature of the Fair Tax plan.
It’s a little, tiny thing called the 16th Amendment to the Constitution of the United States. And it states:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
This Amendment kills the fairness of the Fair Tax. Unless the Fair Taxers can get this Amendment eliminated before they get their plan passed, we WILL end up with both a national sales tax and an income tax. Mark my words.
Why do I say that?
Well, it plainly says it right there for everyone to see: “Congress shall have power to lay and collect taxes on incomes.” What could be clearer?
Now, it might be true that, once passed, the Congress will repeal all their IRS laws and requirements. It is quite possible that a Fair Tax fever will sweep our old tax structure right out of existence. But, a tax laid aside is not a tax dead and a law ignored is not a law repealed.
Even if we were lucky enough to have a Congress exuberant enough for the Fair Tax plan to sweep away all our old taxes, with the 16th Amendment still lurking there in the Constitution, we would have but to wait for a time when a different Congress would begin the efforts to tax income all over again. And they would do it quite despite what any previous Congress said. After all, it says we can tax income right in the Constitution! It would be a temptation that no Congress could long resist.
Of course, this Fair Tax panacea would also not necessarily be put in place by the individual states and need not be. As Federalist 33 clearly says, the individual states have their own completely Constitutional powers to tax and they are powers separate from the Federal government. As Alexander Hamilton wrote: “The inference from the whole is, that the individual States would, under the proposed Constitution, retain an independent and uncontrollable authority to raise revenue to any extent of which they may stand in need, by every kind of taxation, except duties on imports and exports.”
So, a Federal adoption of the Fair Tax plan would not assure that the states would follow suit. In fact, many states would raise their taxes even higher since the Federal government would to some extent be dropping theirs.
But that is a minor quibble compared to the fact that without eliminating the 16th Amendment, we’d eventually — and sooner rather than later if I know the greed of government — have both a national consumption tax via the Fair Tax plan AND a Federal income tax piled neatly right on top.
Heck, Congress doesn’t even need a Constitutional Amendment to breach the Constitution. The Constitution has already been breached. As Article 1., Section 8a, says, “all duties, imposts, and excises shall be uniform throughout the United States.” A graduated tax is hardly “uniform” because it hits some people differently than it does others. Who could imagine that the Founders thought that people of middle income would often pay no tax while the upper reaches of the income bracket would pay nearly all of it?
Sure the Fair Tax is a great idea in theory. But, I have to stand against it until we change the Constitution with a Constitutional Convention. And, unfortunately, that is a rare thing nearly impossible to arrange. Worse, we would have to expect politicians that derive power from the tax code to be the ones to call it to order. And that is probably the biggest fantasy of them all.
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Stumble It!
September 12th, 2007 at 5:32 pm
Is this article based on what you’ve heard? Surmised? Guessed based on logic? Did you read the proposed legislation or the fair tax book written by Neal Boortz and the author of the fair tax legislation, Congressman John Linder? I suspect your answer is probably yes to one or more of the first three and no to my last question.
The proposed fair tax legislation requires that the 16th amendment to the constitution be reversed before the fair tax is instituted after its approval. Of course we can argue that Congress could remove that provision from the legislation before it’s approved, but then that wouldn’t be the fair tax as proposed and what all the supporters are pushing for. The government will always have the power to raise our taxes as much as and whenever it wants under any system, as long as we don’t mount some big campaign at the time against it, so I don’t see why some people are fighting a tax that would get the federal government out of our lives by removing a tax that is continually used for paying back supporters and friends and getting all of us to act the way it wishes us to act at any particular moment based on who’s in congress at the moment, lowering and raising specific taxes to make us respond like puppets. And if we don’t we pay extra for the privilege of acting the way we wish, even though what we are doing isn’t illegal.
Saying that the states don’t have to put the tax in place, bologna! We are talking about FEDERAL taxes. The income tax, medicare tax, social security tax, federal estate tax and gift tax are all FEDERAL taxes that will go away being replaced by the federal fair tax if all the listed federal taxes are no longer levied by the federal government. Since these are all federal taxes, who cares about the states? By the way, the states now have the same ability to raise our taxes whenever they can get away with it, so approving the federal fair tax won’t change that. But we are not talking about state taxes and we have a bit more ability to stop or restrict state taxes than federal taxes. State taxes are more local, so we have a bit better chance in an ongoing fight to keep our taxes as low as possible.
Furthermore, we don’t need a constitutional convention to change the constitution the way I understand it. We need the amendment legislation approved by a specific percentage of congress and then it must be ratified by a certain number of the individual states.
Of all the good points about this tax, the one I like the best is that illegal immigrants won’t be able to avoid it like they can our current income tax by taking phony identities and not filing income tax returns. So will tourists who come to the states temporarily from other countries.
I agree with your last comment, but if enough of us get educated on the tax and people with the power to influence others stop attacking it based on inaccurate info, we could get to the point that our congressmen no longer have any choice but to pass it.
September 12th, 2007 at 9:58 pm
Thoughtful article, WTH. Certainly, such a concern has been at the heart of FairTax developers. How better to answer it, than quoting their FAQ:
“The short answer is that there is no provision in the FairTax bill (HR 25) that would prevent having a national sales tax and the income tax. However, the FairTax legislation does three things that effectively dismantle the income tax: (1) it abolishes the IRS, (2) it repeals all statutory language having to do with taxing income and payroll (i.e., the Internal Revenue Code), and (3) it eliminates the filing of annual income tax returns to the federal government for over 140 million Americans. The 16th Amendment does not “require” an income tax, it only “allows” one, and the FairTax will have broken that egg in a million pieces. It would be extremely difficult to put that egg “back together again.” Once the FairTax is enacted it would be an extremely daunting task for Congress to make people start filing income tax returns again. There would be a public uproar. Once the American public has experienced the freedom from filing income tax returns it’s hard to imagine them tolerating going back.
“Furthermore, the sponsors of the FairTax are totally dedicated to the permanent repeal of the income tax. No current supporter of the FairTax would support the FairTax unless the entire income tax is repealed. There is a separate bill, HJR 16, which repeals the 16th Amendment to the Constitution but it must go through a different adoption process than HR 25. HJR 16 has to be passed by a two-thirds vote of members of both the House and the Senate and be approved (or ratified) by three-fourths of state legislatures (38). We are currently laying the organizational groundwork for this push and have already started the educational process at the state level.
“Finally, the reality is that we already have both an income and a type of sales tax today. All of our U.S. produced goods and services are burdened with an “embedded” tax due to the cascading of income and payroll taxes paid by U.S. employers to the U.S. Treasury at every step of production. Of course, these costs are passed on to the ultimate payer, the customer. It’s fair to call these embedded taxes a “sales tax” because we pay it every time we buy any goods or services we just don’t see it. The FairTax eliminates these embedded taxes, resulting in a single-rate national sales tax visible to all.”
September 12th, 2007 at 11:05 pm
I certainly agree with the last paragraph, Ian! We DO have defacto both, it is sadly true.
In any case, I like the Fair Tax for the most part. But we have to ditch that amendment before we even dream of any other attempts to change the current system.
September 13th, 2007 at 6:18 am
In reguards to the states still haveing an income tax: While it was pointed out that this bill is only seeking to address taxes on the federal level, there is a high probability that states would follow suit due to their using the AGI of the federal form to calculate their taxes. With no such form in place anymore, they would either have to impliment their own computation form or follow suit with their Fair Tax equlilivalant.
September 13th, 2007 at 8:00 am
Well just embed a little something in the bill that prevents the Fair tax from beginning prior to the elimination of Income Tax and abolishes it entirely on any resumption or implementation of Income Tax.
Of course, there can be laws the can be put in place to handle that, too. But really, why spend time fretting over what Congress may do to us in the future? Haven’t they already shown what they will do to us?
Freedom requires vigelence.
Congress is already allowed to do stupid things to us. Don’t let this stop them from doing something for us for once.
September 13th, 2007 at 9:07 am
Me and my wife combined make $75 gross. Can you put me in contact with these people that will enable me to pay zero taxes?
September 13th, 2007 at 10:59 am
>In any case, I like the Fair Tax for the most part. But we have to ditch that amendment before we even dream of any other attempts to change the current system.
This is a very disingenuous statement because Congress will never repeal the 16th amendment without a replacement standing in the ready to replace the immediate lost income. Most of the government is funded by the income tax and all the accompanying payroll taxes.
Is this the REAL reason why you’re dissing the Fair Tax? Do you have a dog in this fight? Do you or someone in your family do income taxes for others for a living who would lose their jobs with the abolition of the income tax? Do you or someone in your family advise others or companies on how to avoid or minimize their income taxes who would lose their job if the income tax were abolished?
Your reasons for dissing the fair tax just don’t fly, unless there is some ulterior motive. There are so many good points in this tax that will improve the way this country works, how could anyone be against something as great as this because, in their eyes, it isn’t absolutely perfect yet. With everyone in this world being different, how could we ever accomplish anything if we always require unanimous agreement that each step be perfect before individually approving each?
September 13th, 2007 at 11:48 am
$75 grand even
September 13th, 2007 at 12:00 pm
The best tax possible, if one HAS to have a tax, is not a socialist (communist) progressive tax, but the original concept of an apportioned tax.
An apportioned tax, everyone is taxed exactly the same amount, and the remainder after state expenses, is divided exactly evenly among the population.
However, leftists are rotten at math… or rather socialists are, as they cant run businesses, and are even worse at running states.
Lets make the math simple:
You have 100 destitute with almost no income 10$ a year (ttl 1000)
You have 100 poor that earn 100 dollars a year each (ttl 10,000)
You have 200 middle class that earn 200 dollars a year (ttl 40,000)
And you have 50 wealthy people that earn 5000 dollars a year. (ttl 250,000)
In our graduated system (invented by the communists to be fair), everything is a mess. There is huge waste as everyone doesn’t know whats going on, there is that schedule and this schedule, and on and on. on big mess. Right?
Of course since we no longer follow the spirit of the law (inconvenient for totalitarians), and follow the letter of the law as both rules of how to act AND arbiter of public morals.
Even simple rules when put together can lead to extremely complex behavior. And complex rules tend to create a situation where those who are not making the complex rules but are smarter (lawyers and cpa’s), can see the implications that the delusional socialists NEVER see.
And so we have this bizarre monstrosity where those with more money can hire people smarter than the ideologues who are working with other peoples money, and are trying to make rules to meet their goals and not stomp on themselves. (takes high social morals to be nobles oblige and such, and secularism just doesn’t come from that cut of cloth).
Anyway… lets say that the apportioned tax is 10%… and the state gets 10% of that.. technically that was to be it! nothing else, if the state couldn’t work on that, then the state had to make do… deficit spending and rolling the presses were not allowed.
Anyway… mix it all up… and what would happen is that in the example set above the state would collect 100, 1000, 4000, 25000, from the groups. That’s 30,100… from that it would take its 10%… leaving 27,090 left.
Now the fun part…
In this population there are 350 people.. each person would end up getting a return of 60 dollars..
So whats the outcome?
Well after the tax returns are in. those that earned 10 dollars a year would see their income rise by 600%… in fact they would be closer to the poor instead of the destitute.
They would put 1 dollar in in taxes, and get 60 dollars back. making the money they have in the year 69$
Those that are poor, would and earned 100 dollars a year, would put 10 dollars in and would get 60 back… making their yearly amount after 150$
Those in the middle class that earned 200, would put in 20, and would get 60 back.
So they would end up with 240…
And the wealthy… they each put in 500, and they get 60 back… so now they have 4,560 left…
Basically an apportioned tax automatically pins the middle to the middle… takes more from the wealthy, gives more to the poor…
It has no loopholes… it limits the state to the prosperity of the whole country…
It would cost much less to file… and on and on…
The state would have to be fiscally responsible…
Talk about a game that socialism plays… their soviet style graduated tax is actually a way to destroy the middle class (capitalists), shuttle that money to the already powerful (social elite), and dooms the poor (lumpen proletariat).
Only a mathematically illiterate population would think that a progressive tax was more fair than an apportioned tax…. The only others that would do that would be socialists…
September 13th, 2007 at 12:06 pm
Congress shall have power to lay and collect taxes on incomes.” What could be clearer?
ah… maybe it WAS clear, but the definitions of the words changed?
income was was money made from being a boss of others…
so originally it meant that companies and their owners got taxed because they made money coordinating others and providing monies..
but the person getting paid was not earning income…
that changed later…
now income can be impugned…
the founding fathers never sought to make wage slaves of the common man.
September 13th, 2007 at 2:25 pm
For a very interesting article (which gives support maquiscat’s 4. comment above), check out Thomas Frey’s, “The Coming Collapse of the Income Tax (2006?)”. Notice the last comment thereon mentions the FairTax.