The so-called Fair tax is not fair nor is it balanced; it’s a scam. It’s a scam designed by the 1% and supported by the GOP to shift the tax burden from the 1% to the rest of us at the same time permanently reducing Federal revenue. Permit me to explain.
Before passage of the 16th amendment to the US Constitution on February 3, 1913, most Federal revenue was produced by various tariff laws. Tariffs were and are taxes levied and collected on goods that enter the country from foreign suppliers. The taxes were collected by customs offices in the cities where the goods entered the US, New York City being particularly important. Corruption in the customs offices was a recurring problem. In addition, US manufacturers lobbied for high tariffs to protect themselves and their industries from cheaper goods made abroad. The result was that US consumers paid higher prices for goods protected by tariffs. US manufacturers claimed that some of the higher prices would trickle down to their employees in higher wages, but generally that was not true.
In addition, members of Congress were corrupted by cash bribes and other gifts so that they would support high tariffs. You could think of the corruption surrounding tariffs as an earlier version of the corruption of our present campaign finance practices. Then, vote for my tariff and I’ll give you cash. Now, vote for my tax loophole and I’ll contribute to your campaign.
The 16th amendment to the US Constitution was passed during the administration of William Howard Taft, a Republican, not Woodrow Wilson as some seem to believe, It was enacted as a fairer tax and to eliminate the corruption around tariffs. The theory being those with more money should pay more taxes. However, much of the corruption in the tariff system has migrated over to an income tax system that has become riddled with special-interest loopholes. But that is no reason to toss out the progressive income tax and replace it with the Fair tax. It is a good reason to simplify the income tax and eliminate special interest provisions.
The so-called Fair tax is a flat tax, a consumption tax with a gimmick. The gimmick is rebates to lower-income earners, such as the Earned Income Credit that lower-income wage earners receive now. Proponents of the Fair tax want to eliminate the IRS and replace the graduated income tax, the capital gains tax and the estate (death tax) tax with the Fair tax. Their argument in favor of the Fair tax is that it would be simpler. That is true, but it is still a bad idea.
The 1% derive much of their income from the capital gains tax and the IRS is what keeps taxpayers honest. Most taxpayers are honest and the threat of an audit is what keeps them that way. As the threat of an audit diminishes, tax cheating increases. Elimination the inheritance tax would allow the wealthy to pass on their wealth to the next generation, destroying the level playing field that most of us support and also destroying our democracy. It was Associate Justice of the US Supreme Court from 1916 to 1939, Louis Brandeis, who said that we can have democracy or we can have great concentrations of wealth, but not both at the same time. I agree.