Mises Daily by Laurence M. Vance | Posted on 5/18/2005 12:00:00 AM
Since my recent article on the evils of the withholding tax, I have been inundated with e-mails by supporters of the " FairTax," including a request that I endorse "The Fair Tax Act of 2005" currently pending in the Congress. But like the calls for "fair trade" instead of "free trade," the FairTax is a fraud because it is based on the fallacy that government theft (taxation) should be done in a "fair" manner instead of eliminated altogether.
But could the cure they offer be worse than the disease?
The FairTax is a consumption tax in the form of a national retail sales tax on new goods and services. It is designed to replace "federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes." The FairTax would also abolish the IRS and repeal the 16th Amendment.
The Fair Tax Act of 2005 is H.R. 25 in the House (introduced on January 4) and the identical S. 25 in the Senate (introduced on January 24). FairTax proponents who complain about the complexity of the Internal Revenue Code are going to have a hard time convincing those of us who have actually read this bill (it came to 59 pages when I printed it out from my computer) that it will simplify the tax code when it contains language exactly like that which appears in the tax code:
(b) Rebate Defined- For purposes of subsection (a) (2), the term 'rebate' means so much of an abatement, credit, refund, or other payment, as was made on the ground that the tax imposed by chapter 41, 42, 43, or 44 was less than the excess of the amount specified in subsection (a)(1) over the rebates previously made.'.
Strangely absent from the list of co-sponsors of H.R. 25 is Congressman Ron Paul(R-TX). Representative Paul has consistently been named the "taxpayers' friend." If the FairTax proposal was as friendly to taxpayers as its proponents say it is, I would expect Congressman Paul's name to be first on the list of co-sponsors.
FairTax advocates claim that their plan would repeal of the 16th Amendment. However, all H.R. 25 does is repeal Subtitle A of the Internal Revenue Code of 1986 that relates to income taxes and self-employment taxes and Subtitle C that relates to payroll taxes and the withholding of income taxes. The only mention of the 16th Amendment in H.R. 25 is when it says: "Congress further finds that the 16th amendment to the United States Constitution should be repealed."
To repeal the 16th Amendment would require a constitutional amendment. Can Congress be relied on to pass a constitutional amendment that repeals the 16th amendment after a national sales tax has already been enacted? And even if Congress passed a constitutional amendment, it would still have to be approved by three-fourths of the states. Without the repeal of the 16th Amendment, what is to prevent an income tax from being imposed again after a national sales tax has been enacted?
Under the FairTax system, there are no longer any Social Security and Medicare taxes. However, this does not mean that Social Security and Medicare will be eliminated. The inclusion in the combined percentage of the old-age, survivors and disability insurance and the hospital insurance rates means that the Ponzi scheme known as Social Security will continue as is—only the way it is funded will change.
The real problem with the FairTax is threefold. In " An Open Letter to the President, the Congress, and the American People Concerning Reform of the Federal Tax Code," which is posted on the FairTax website along with the endorsement of seventy-five "professional and university economists," we can see the trouble with the FairTax immediately:
We are not calling for elimination of federal taxation, which would be irresponsible and undesirable. Nor does our endorsement call for reduced federal spending. The tax reform plan we endorse is revenue neutral, collecting as much federal tax revenue as the current income tax code, including payroll withholding taxes.
There is only one word to describe the fact that the federal government now spends almost $3 trillion a year: obscene. At least 90 percent of what the federal government spends is unconstitutional, wasteful, or against the limited-government principles of the Founders. The only thing the FairTax does is change the way the state confiscates the wealth of its citizens. As Congressman Ron Paul says: "The real issue is total spending by government, not tax reform." READ FULL ARTICLE AND FAIR TAX BILL.