The "Fair Tax"

The idea of replacing our current tax collection system with a consumption tax (i.e. a sales tax) first caught my interest over 30 years ago.

Like most states, California already had a state sales tax; I recall it being a little over 8% at the time. Why not, I reasoned, eliminate the chore (and cost) of filing convoluted tax forms and, instead, simply add a federal sales tax on top of the existing state sales tax -- bringing the total sales tax up to 25% or 30%, or whatever would be revenue neutral?

The idea still appeals to me. Most of the IRS could go away. A pay-as-you-go system would be created, where workers bring home more of the money they earn, and the tax burden would be visible in the real cost of each item purchased. Consumers could then make more informed decisions about the best use of their money. The increased visibility of the tax rate would also encourage more accountability in Washington, as consumers would be forced to consider the real cost of government each time they made a purchase. Allowances could be made for poor folks, perhaps by exempting essentials like food and clothing from the tax.

So, when the "Fair Tax" began to be discussed this election cycle, I was understandably interested.

However, my interest waned quickly, and I never did take the time to look at the details of the proposal. There are a couple of reasons for this.

First, it was Mike Huckabee who adopted the "Fair Tax" plan, and I just never considered him a serious candidate. Even when he surged, and echoes of the great "Huckaboom" were being heard across the nation, I didn't consider him a viable candidate. I assumed he would fade as quickly as he emerged amidst the strong Republican field. As it turned out, circumstances conspired in his favor, and Huckabee faded much more slowly than I imagined. It looks like he'll emerge as more of a presence in the Republican party than I would have guessed; nevertheless, he never was a viable candidate in my opinion.

Having the "Fair Tax" attached to an "also ran," and given the unlikelihood that such a plan would get through Congress in any event, meant that it was DOA from the start. The details simply don't matter, and so I never bothered to scope them out.

The second thing that soured me on delving deeper into the "Fair Tax" is the dishonest way it is being marketed. For example, Neil Boortz, coauthor of a pair of books on the "Fair Tax," and one of its chief proponents, insists that the proposal would levy only a 23% tax on items purchased.

Yet it's clear that the 23% figure can only be arrived at through trickery: Under the plan, an item that would otherwise cost $1, will be taxed 30-cents, meaning you will pay $1.30 at the register.

It's easy to see that this is a 30% tax, 30-cents being 30% of $1. If it were really a 23% tax, the final cost would be $1.23. Pretty straight forward stuff.

But a 30% tax is a lot harder to sell than a 23% tax, so Boortz cheats. He gets his 23% by adding the amount of the tax (30-cents) to the cost of the item ($1) before calculating his tax rate. It's true that 30-cents is 23% of $1.30. But the 30-cents is being taxed on an item that costs $1, not $1.30.

This is clever. It's also dishonest. Yet Boortz, Huckabee, et al keep claiming the 23% figure is correct. Boortz typically responds to those who try to set the record straight on this issue by calling them idiots, or worse.

So, that's why I haven't bothered to take the "Fair Tax" seriously. Tax and economic systems are complex things. I can't imagine that such sweeping changes as those proposed didn't involve a lot of guesswork on the part of a lot of people. I'm no expert on these matters, so I'd ultimately have to rely on the statements of others to form an opinion.

If I can't trust the backers of the "Fair Tax" to be honest about something as simple as the proposed tax rate, how could I possibly rely on anything else they have to say about it?

I hope that something like the "Fair Tax" gets a serious debate at some point, but given the players and their tactics, I'm glad it didn't happen this time around.