It's a bad bill. (Long)
It has less than 30 sponsors according to Linder's [link|http://64.233.161.104/search?q=cache:nv4QhBPaun8J:linder.house.gov/_pdfs/4.FairTax-HouseCo-Sponsors.pdf+HR+25+sponsor&hl=en&client=firefox-a|list].
Why's it bad?
1) Lots of taxes are eliminated, including income, payroll, estate and gift taxes. Gee. Who will benefit the most from that?
2) It'll be administrated by the States. That's a way of passing on the cost of the scheme to the states without federal oversight. Want to bet on whether enough money will be appropriated to run the system reliably? The IRS has quite a bit of trouble with their IT systems and that's under a single organization. Imagine what 50 IT systems will be like that have to coordinate with each other in their reporting to the Treasury.
3) It takes the premise that taxes are bad, rather than taxes are an essential part of having a functioning government. It in particular says:
SEC. 2. CONGRESSIONAL FINDINGS.
(a) Findings Relating to Federal Income Tax- Congress finds the Federal income tax--
___(1) retards economic growth and has reduced the standard of living of the American public;
___(2) impedes the international competitiveness of United States industry;
___(3) reduces savings and investment in the United States by taxing income multiple times;
___(4) slows the capital formation necessary for real wages to steadily increase;
___(5) lowers productivity;
___(6) imposes unacceptable and unnecessary administrative and compliance costs on individual and business taxpayers;
___(7) is unfair and inequitable;
___(8) unnecessarily intrudes upon the privacy and civil rights of United States citizens;
___(9) hides the true cost of government by embedding taxes in the costs of everything Americans buy;
___(10) is not being complied with at satisfactory levels and therefore raises the tax burden on law abiding citizens; and
___(11) impedes upward social mobility.
(b) Findings Relating to Federal Payroll Taxes- Congress finds further that the Social Security and Medicare payroll taxes and self-employment taxes--
___(1) raise the cost of employment;
___(2) destroy jobs and cause unemployment; and
___(3) have a disproportionately adverse impact on lower income Americans.
(c) Findings Relating to Federal Estate and Gift Taxes- Congress finds further that the Federal estate and gift taxes--
___(1) force family businesses and farms to be sold by the family to pay such taxes;
___(2) discourage capital formation and entrepreneurship;
___(3) foster the continued dominance of large enterprises over small family-owned companies and farms; and
___(4) impose unacceptably high tax planning costs on small businesses and farms.
(d) Findings Relating to National Sales Tax- Congress finds further that a broad-based national sales tax on goods and services purchased for final consumption--
___(1) is similar in many respects to the sales and use taxes in place in 45 of the 50 States;
___(2) will promote savings and investment;
___(3) will promote fairness;
___(4) will promote economic growth;
___(5) will raise the standard of living;
___(6) will increase investment;
___(7) will enhance productivity and international competitiveness;
___(8) will reduce administrative burdens on the American taxpayer;
___(9) will improve upward social mobility; and
___(10) will respect the privacy interests and civil rights of taxpayers.
They may believe all of these evils and may believe all of these "will"s, but there's little evidence for it. There is no other country, certainly no other economy the size of the US, that only has a sales tax to support the government.
There are some big assumptions in this legislation. For instance, that prices will fall greatly once something is only taxed when it reaches the final consumer. I'll bet it'll work out the way CDs were *so* much cheaper than vinyl albums too, right? Cheaper to manufacture, higher quality, smaller form factor -> guaranteed lower prices! Yes, somehow, it didn't work out that way. Gee, I wonder why.
Prices paid by consumers have a lot more to do with a) history; b) competition; c) perceived value; d) raw materials; and e) other expenses than taxes. Since so much of manufacturing and so many service industries have been under pressure for many years, I can imagine that if their costs suddenly dropped by 23% that they would work very hard to keep their prices the same and enjoy the increased profitablity. Or maybe even pay their employees more. What happens if this windfall of lower prices doesn't materialize?
While the bill is fairly short, there's still a lot of wiggle room in the definitions of various things, like family, and business, and inter-business transfer. Enforcement officers and tax lawyers will still be needed. So much for increased efficiency.
The bill claims that it'll increase savings. Did it occur to Linder (and others) that the reason why the US savings rate is so low is that interest rates are low? Many people figure that it makes more sense to spend their cash than sock it away in a 1.5% APY savings account. As interest rates creep up in the US, I expect the savings rate to rise again.
There are a few big problems lurking too. What about profits from selling a home? Lots of people are looking forward to that $250k/$500k tax free on their home sales profit. Oh, you mean that when I sell my home for $500k I'll now have to give up $115k+ to pay the sales tax? That'll be really popular, won't it?
Social Security and Medicare taxes will still be collected, but out of this sales tax pot. There will still have to be a bureaucracy to keep track of things. But notice how going to a sales tax introduces other complications with respect to Social Security. Employers will still have to report wages of employees to the SSA - so there goes the "increased privacy benefit".
The bill defines what qualifies as a Family for tax purposes. Why does it need to do that? Why do businesses get the benefit of the doubt, but people have to register and prove they're members of a "Qualified Family" every year to get the government supplied "consumption allowance"?
Taxes will be assessed each month, so rebates and deductions for bad debts, insurance payments, etc., etc. will have to be done every month. Rather than once a year. Yeah, that'll improve efficiency and reduce time spent figuring taxes. Uh huh.
It would do away with the estate tax - a tax that Teddy Roosevelt [link|http://www.pgtoday.com/pgt/articles/mt_rushmore_and_a_history.htm|championed]:
"The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government.\ufffd The wealthy individual needs to pay for the \ufffdprotection\ufffd that the State provides for his or her property - a military force that defends private property from foreign threat and a legal system/police force that protects private property from domestic theft. Roosevelt is echoing Adam Smith\ufffds observation in the Wealth of Nations: \ufffdIt is only under the shelter of the civil magistrate that the owner of valuable property can sleep a single night in security.\ufffd
Like all of the other members of the estate tax Mount Rushmore club, Roosevelt had no intentions of taxing small estates. \ufffdIt is most desirable to encourage thrift and ambition, and a potent source of thrift and ambition is the desire on the part of the breadwinner to leave his children well off. This object can be attained by making the tax very small on moderate amounts of property.\ufffd Roosevelt\ufffds estate tax was aimed at enormous fortunes like those of the Rockefellers, Vanderbilts, Astors and Morgans.
Or Waltons and Gates and Mars and [link|http://www.washingtonpost.com/wp-dyn/content/article/2005/08/11/AR2005081102013.html|all of the others in the top 1%]. The estate tax is important and should be retained.
It ends corporate income taxes. While one can argue that customers and share holders end up paying corporate taxes anyway, one need only look at Microsoft to realize that corporations become dangerously powerful when they accumulate too much wealth. A (properly run) corporate income tax system is necessary to control corporate power.
[link|http://www.brendoman.com/hippydave/2005/08/02/p8293|This] post has some more comments on it.
Bottom line: It's a sop for the far right wing. It won't go anywhere in Congress. If it did, it would reduce the tax load on the wealthy (as they can save more of their income than the middle class or the poor). It would be inefficiently administered, would increase the paperwork burden on most people, and would not provide the benefits to the country that the current system does. It would lead to an America even more strongly tilted toward the wealthy. It would not be "Fair" it would be manifestly unfair.
My $0.02.
Cheers,
Scott.
