Wednesday, December 12, 2007
I would have preferred an article that voiced opposition to all government confiscation of property (i.e., taxation as such), or at least took a more consistent stand against the welfare state. Nevertheless, Amity Shlaes raises some objections to the "Fair Tax" which pro-capitalists will find worth considering.
Says the author of The Forgotten Man: A New History of the Great Depression:
The FairTax does away with the income tax, corporate taxes, estate taxes and just about any other federal levy. It also kills off the Internal Revenue Service. Under the FairTax, Washington would apply a single national sales tax on purchases, whether a DVD player, or a new house. To take the edge off the pain for lower earners, the FairTax offers them a monthly rebate. [A welfare state element like this in an allegedly free-market reform is a red flag, as if proposing a new way to tax isn't a red flag in and of itself. --ed]As one who once fell for a different primary season tax gimmick, I agree with Shlaes. This idea is a gimmick. It is an attempt to evade the fundamental problems posed by the nature of the welfare state as a mechanism for the redistribution of wealth. (The problem of enforcement, which proponents soft-pedal, is just one way this problem rears its ugly head.)
[T]his catalog of features doesn't mention one thing: the rate. That's because a national sales that captures the sort of revenue Washington needs requires a 30 percent rate. [She notes, as I have, that the 23% rate proponents cite is really a 30% rate. --ed]
A third and significant FairTax problem also has to do with Europe. Europeans introduced their own version of the Fairtax, the value-added tax, while they talked of curtailing the income tax. But when the time came, they retained that levy, generating the double-tax burden that corrupted Europe in the first place.
To avoid such a dual system the U.S. really has to pass that constitutional amendment, and the chances of that are, well, real low. What else? Even the FairTax needs enforcers, so while the IRS may go, another form of tax police will emerge.
The other source of the FairTax's appeal is more subtle. Tax increases are coming one way or another. Medicare Part D, as well as Social Security, will simply require those increases, not only because of statutes but also because Americans expect ever-greater entitlements.
Even a construct as sturdy as the FairTax can't withstand those expectations. Put the federal tax beast in the FairTax cage, and you'll find the states are the ones raising rates. Or that the bill for it is postponed and shifted to younger generations, as the Social Security burden has been.
So the choice is simple. The country can start thinking about reforming entitlements soon, starting with ratcheting down those expectations. Or it can cheer the Fairtax Bus through November and into law. [bold added]
I will say one thing. While it is now highly unlikely we could repeal the 16th Amendment, it is precisely the kind of cultural and political climate in which such would become inevitable that we must work for if we are to ever see a return of low taxes (See PS.), self-reliance, and economic freedom to America. This is a daunting task, but it will never be accomplished by the evasive quick fixes of the "Fair Tax" brigades or by the resignation of nominally pro-free market economists who discount the need to intellectually defend capitalism.
So, sure, we can't fix the Constitution or the tax code, or rid ourselves of the welfare state.
PS: On re-reading this, I realized that I slipped here. Just to be clear, any return to low taxes worth fighting for will be on the way to no taxation. A much smaller government, limited to its proper functions, can and should be funded voluntarily.
12-13-07: Added a PS.