An Analysis of the FairTax
There is significant grassroots movement calling for implementation of the FairTax. FairTax supporters are numerous and enthusiastic, especially on the Internet. In contrast to many Internet-based grassroots movements, FairTax fans are generally polite and well mannered- no trolling chat rooms or spamming polls. Their points are usually thought out, and their goals (such as the abolition of the IRS) are appopiate. However, it is doubtful that the FairTax is actually a viable or practical tax solution.
The FairTax would repeal all federal taxes and replace it with one giant sales tax. FairTax supporters claim that the FairTax would abolish the IRS, simplify the tax code, and close the loopholes in our present plan. These are worthy goals to conservatives. Unfortunately, the FairTax is no way to achieve them. The FairTax almost certainly would not work.
Firstly, the usually tax rate given by FairTax supporters is incorrect. They claim it is 23%. The actual rate 30%. The FairTaxers arrive at this number by calculating the percentage of the sales tax in the total purchase, not the percent added on. For example, a coat that is $100 dollars now will will cost $130 dollars if the FairTax is implemented. 30 dollars, which is 23 percent of $130, would be added, therefore, say the FairTaxer's, the tax rate is 23%.
This is actually correct if the FairTax is compared to an income tax. But the FairTax usually bills itself as a sales tax, and claims that the tax rate is 23% on every dollar. This is inaccurate, and intentionally or not, is misleading. (Ramesh Ponnuru explains this at NRO).
Also, the claim that the FairTax would abolish the IRS is wrong. The FairTax would include a monthly "prebate", a government check that would cover the FairTaxes on essential goods and services. Now apart from the fact that it gives government the power to decide what is "essential", it would necessitate some Washington service to handle the monthly checks. The responsibility of this service would be revenue, particularly internal revenue. Sound familiar? The Internal Revenue Service would probably have a different name, but it would be the same old bureaucracy.
Fans of the FairTax may also want to consider the possibility of a black market arising in order to avoid taxes. After all, if all sales are taxed through the roof, many may opt for "unofficial" sales that would avoid taxes. In addition, it is inevitable that Congress would exempt at least some unnecessary things (perhaps charitable giving) from the sales tax. This would lead, assuredly, to many more exemptions. Special interest groups would get involved, and we would soon have our present corruption-riddled system back with us.
Of course, before we could even start to implement the FairTax, a Constitutional Amendment would be in order. The 16th amendment allows for an income tax. Since no one wants both an income tax and a FairTax (except maybe Hillary, who takes all positions on every issue just out of habit), the 16th amendment would have to be repealed. A Constitutional Amendment must pass both Houses of Congress by a two thirds majority, then be approved by the states with a three fourths majority vote. Considering that our two major political parties can't agree on even the most basic things, does anyone think that any proposal of this magnitude could get that sort of support?
What with "prebates", black markets, and Constitutional Amendments, the FairTax's complexity would make our present tax code look childishly simple by comparison. The FairTax is fatally flawed in many areas, making it fortunate that it is essentially impossible to implement.