The "Fair Tax": What's Fair About That?

If the kid next door mows your lawn for you, the government expects him to be a tax collector on their behalf and collect an extra 23% from his few customers to fund the Unfair Tax. But a stockbroker who makes millions selling stock doesn't have to collect a single penny of the Unfair Tax, because investments are exempted.

What's fair about that? (Click here for Mike Gariepy's reply to this point and my response.)

If you buy a used home from a realtor, you don't pay the Unfair Tax. But if you buy a new home from a contractor, you'll pay over $100,000 for the Unfair Tax (given typical new home prices these days). Under the Unfair Tax scenario, a new home is therefore automatically worth 23% less than a used home, just to make the final price to the customer equal.

What's fair about that?

A new home residential builder is forced to charge a 23% sales tax. But a commercial builder who builds new business buildings doesn't have to be an Unfair Tax collector at all.

What's fair about that?

A new car dealer will be forced to be a government tax collector and charge a 23% Unfair Tax on all sales. But a used car dealer won't have to charge any Unfair Tax at all. Once again, one-year-old used cars will be more valuable than new cars!

What's fair about that? (Click here for Mike Gariepy's reply to the above three points and my response.)

If you're a multi-billion dollar corporation, there are ways for you to cut your accounting staff to take advantage of the much-touted savings to business through fewer filing requirements. But if you're a small business with a part-time bookkeeper, what are you going to do...cut her from 15 hours a week to 10 hours a week? A small business can't experience anywhere near the same percentage cost savings from filing that a large business can. Yet, they are expected to bear as much of the competitive pricing burden caused by the tax as the large corporations are responsible for handling, without the same benefit.

What's fair about that?

If you've got an Internet-based business and you sell a service to a US customer, you're forced to be Uncle Sam's tax collector and pay a 23% sales tax. But the Feds can’t collect from a foreign Internet-based business that sells to that same US customer. There's simply no practical way to do it. So the foreign competitor gets away with selling to the same US customer but not charging a 23% Unfair Tax...a huge competitive advantage.

What's fair about that?

Just as there are tax protesters who live in the shady edge of legality by finding ways to legally justify not paying income taxes, we can be absolutely certain that there will be a new black market in goods and services where people secretly sell to each other without charging the dreaded 23% Unfair Tax. Thus, only honest people will pay taxes.

What's fair about that?

Some small business employers who are faced with having to find some way to remain competitive while absorbing a 23% sales tax into their margins will decide to cut their employees' gross pay to what their pre-Unfair-Tax net pay was, in order to help cut costs. They won't be able to pass the extra cost of the tax along to their customers and remain competitive with their larger competitors who can achieve greater percentages of cost savings. Unfair Tax advocates say that they should be able to cut their costs through reduced filing requirements enough to offset the effect on after-tax pricing, but that simply isn't realistic for a small business. In order to remain competitive, the small business will have to find ways to cut costs anyhow.

(Click here for Mike Gariepy's reply to this point and my response.)

Thus, the employer's answer will be to force their employees to settle for the same take-home pay as they had before the Unfair Tax was passed, enabling the small employer to regain its former competitive edge in the marketplace. Thus, the money the employees were supposed to receive in added income from not having withholding taxes taken out is lost. Sure, they could quit, but many employees work in careers where there just isn't a lot of opportunity to change jobs very easily. If one employer does it, other employers in the same field will have to do it in order to remain price competitive to their customers. Thus, the entire purpose of the Unfair Tax will be undermined.

What's fair about that? (Click here for Mike Gariepy's reply to this point and my response.)

Like the Unfair Tax, all consumption-based taxes shift the burden of taxation from the rich to the poor in comparison to a progressive income tax. Unfair Tax advocates pretend that the poorer people in society will pay no more in taxes than they do now. However, a cursory look at the big picture shows the lie.

Every year, the Federal Government takes in over a trillion dollars in taxes from the income tax, the Social Security Tax, and the Medicare tax, plus the various other taxes that the Unfair Tax would replace. The current system is a progressive system where the rich and where large businesses pay larger proportions of tax dollars than the poorer people in society pay. The Unfair Tax is an attempt to flatten that out. It’s advocates say that it will not reduce the overall income to the government and that it is not a progressive tax. Therefore, it absolutely will shift the tax burden less from the rich and more to the poor, any claims to the contrary not withstanding.

While I certainly don’t believe in “soaking the rich” (as no decent Libertarian does), I also believe that it’s wrong to force the poor to pay more in taxes. When you’re poor, every penny counts. Most poor people scratch to get by. Even with the current level of taxation and regulation, it’s almost impossible for the poor to save even a few dollars for a rainy day. Adding to their tax burden is morally criminal in my opinion. We should certainly be reducing the tax load for the rich, but not by dumping it on the poor. Instead, we should slash the Federal Government to its Constitutionally limited functions, thereby making it possible for EVERYONE to pay lower taxes.

But the Unfair Tax supporters don’t see it that way. They want to eliminate the progressive income tax, replace it with a flatter consumption tax, and pretend that the poor aren’t the big losers.

What's fair about that? (Click here for Mike Gariepy's reply to this point and my response.)

Under the current income tax withholding system, everyone has to file a final tax return every year. Thus, everyone gets to see exactly how much total taxes he or she is paying in the form of withholding taxes. Unfair Tax advocates say that’s not good enough, that their proposal will make the cost of government more visible on a daily basis. But under their system, most people won’t ever have to file a tax return again. Unfair Tax advocates say it doesn’t matter, because consumers will see it every time they buy a good or a service.

Unfortunately, it isn’t true, particular with micro-businesses. Most micro-businesspeople who offer services don’t charge a state sales tax over and above the cost of their labor. Instead, they simply pay the sales tax out of their total labor fee, making it appear to their customers that they’re not paying the sales tax. Examples include landscapers, plumbers, professional gardeners, electricians, handymen, all kinds of trades people who deal direct with the public, etc. There is every reason to believe that this practice will continue under the Unfair Tax, in order for the micro-business owners to “appear” to be cheaper than their competition. In cases like this, the Unfair Tax will actually be a “hidden” tax.

Further, even if a tax appears on a bill doesn’t mean people will necessarily read it. For instance, without peeking, can you tell me how much tax you pay on your phone bill each month? While some libertarians can, most private citizens can’t. If they’re not aware of the current 15% or so in taxes that appear on their phone bills (sometimes much higher, depending on local telecom taxes in their area), how can they possibly be expected to pay any more attention to the impact of the Unfair Tax on any given purchase…unless they’re purchasing something big, like a new home!

What’s fair about that?

The Fair Tax is a myth. It's more accurately an Unfair Tax. I wish people would stop calling it something it isn't.

(Click here for some final comments from Mike Gariepy and my responses.)